Ten years’ experience with the Swiss National Bank’s monetary policy strategy

Abstract

Summary In 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.

Discussion of “Unemployment and Monetary Policy in Switzerland” by Peter Kugler and George Sheldon

“…In December 1999, the Swiss National Bank (SNB) introduced a new monetary policy strategy involving a formal definition of "price stability", the publication of inflation forecasts, and the announcement of a target range for the threemonths swiss franc Libor (e.g., Jordan, Peytrignet and Rossi, 2010). This new strategy was aimed at communicating more clearly the SNB's actions, effectively anchoring the public's inflation expectations, while maintaining some continuity with past policy.…”

Nominal Stability and Swiss Monetary Regimes Over Two Centuries

“…Therefore, this was the first time price stability emerged as the main objective. Jordan et al (2010) suggest that, implicitly, an annual CPI inflation objective of roughly one percent was consistent with the SNB's communicated monetary targets. However, no explicitly announced inflation target existed.…”

“…The main differences relative to monetary targeting are reflected in the way the price stability objective and the policy decisions are communicated, as well as in the choice of the operative target. The new monetary policy strategy rests on three main principles (see Jordan et al 2010). Firstly, the SNB announced an explicit definition of price stability as an annual CPI inflation rate that remains between 0% and 2% in the medium term.…”

Is there a Swiss price puzzle?

“…e.g. Jordan, Peytrignet and Rossi, 2010). Usually, it aims to hold the 3M Libor in the middle of that range.…”