Monetary Policy Without Central Bank Money: A Swiss Perspective

Georg Rich

27 citations0/0 files storedInternational Finance

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Monetary Policy and Economic Impact Global Financial Crisis and Policies European Monetary and Fiscal Policies

Abstract

At the end of 1999, the Swiss National Bank modified its monetary policy concept and abandoned monetary targeting in favor of an approach based on an inflation forecast. Although central bank money or the monetary base, the SNB's intermediate target variable, was plagued by instabilities, the switch to a new policy framework was motivated by more fundamental problems arising from monetary targeting than the stability of money demand. While the monetary base served as an effective long-run policy anchor, it was not well suited for deciding how the SNB should respond to unexpected shocks, notably exchange rate and cyclical shocks. A policy approach based on an inflation forecast should help the SNB to deal better with such shocks. The paper contrasts the new policy framework with the SNB's experience of monetary targeting. It also discusses two other innovations introduced by the SNB: A definition of price stability, its ultimate policy objective, and an operational target band for the three-month interest rate. R A first draft of this paper was presented at the Conference on the Future of Monetary Policy,

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References

1993Discretion versus policy rules in practice 1997Inflation forecast targeting: Implementing and monitoring inflation targets 1961A Program for Monetary Stability 1999Inflation targeting: lessons from the international experience 2001Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates 1987LIMITS OF SHORT‐RUN STABILIZATION POLICY PRESIDENTIAL ADDRESS TO THE WESTERN ECONOMIC ASSOCIATION, JULY 3, 1986 1997Monetary targets as a policy rule: Lessons from the Swiss experience 1996What operating procedures should be adopted to maintain price stability? practical issues

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2001Monetary Policy Under Low Interest Rates: The Experience of Switzerland in the late 1970s 2010Ten years’ experience with the Swiss National Bank’s monetary policy strategy 2000The Role of Interest Rates in Federal Reserve Policymaking 2006Strong goal independence and inflation targets 2007Swiss Monetary Targeting 1974–1996: The Role of Internal Policy Analysis

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