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Monetary Policy Without Central Bank Money: A Swiss Perspective[Note 1. A first draft of this paper was presented at ...]
Author(s) -
Rich Georg
Publication year - 2000
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/1468-2362.00060
Subject(s) - perspective (graphical) , citation , monetary policy , economics , keynesian economics , political science , law , computer science , artificial intelligence
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.