Abstract
SummaryIn December 1999 the Swiss National Bank (SNB) abandoned monetary targeting and introduced a new monetary policy strategy. The cornerstones of the new framework are an explicit definition of what the SNB considers to be price stability, a forecast of inflation over a three-year horizon, and a target range for the three-month Swiss franc Libor. The strategy lived up to expectations in every respect and contributed to strengthening the SNB’s credibility. In particular, the new framework’s flexibility proved successful in times of financial stress. The term reference interest rate contains an automatic monetary stabilizer that has insulated the nonfinancial sector from much of the turbulence. The major challenge lying ahead is sustained accuracy in the assessment of future inflation.
Highlights
Over the past 30 years a growing consensus has emerged that price stability is the overriding goal of monetary policy
With the wisdom of hindsight, the Swiss National Bank (SNB) arguably put too little weight on its prime objective of ensuring price stability, notwithstanding the correctness of the messages delivered by the inflation forecasts published at the time and confirmed by the money gap depicted in Figure 24.42 We conclude that if the SNB fell a little behind the curve, it was not because of a failure of its strategy but rather because of an arguably liberal interpretation of its mandate to take into account the economic situation
At the end of the 1990s the SNB put in place a new framework for the conduct of its monetary policy
Summary
Over the past 30 years a growing consensus has emerged that price stability is the overriding goal of monetary policy Once this was identified, the crucial question was how a central bank should conduct monetary policy to achieve its ultimate objective. The Swiss National Bank (SNB) modified its monetary policy strategy during that period. It did not adopt inflation targeting but opted for its own strategy. The cornerstones of the new framework for monetary policy are an explicit definition of what the SNB regards as price stability, a forecast of inflation over a three-year horizon, and a target range for the three-month Swiss franc Libor (3M Libor).
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