The Swiss National Bank's monetary policy concept - an example of a 'principles-based' policy framework

March 1, 2007
Issue 2007-03

Summary

The practice of monetary policy has evolved a great deal since the early 1990s. This evolution was significantly influenced by rapid developments in the theory of monetary policy. A new consensus about 'principles-based' monetary policy appears to be emerging. It marries a firm long-term anchor for nominal stability, rooted in the original ideas behind inflation targeting, with short-term flexibility, based on a more discretionary and pragmatic approach to monetary policy. The SNB's monetary policy framework - with a firm nominal anchor but with an emphasis on the need for flexibility - reflects, to a considerable degree, the emerging academic consensus about best-practice monetary policy. With its successful seven-year track record, it may serve as an interesting case study for a policy aiming at an intermediate position between full discretion and rigidly defined short-term inflation targeting.

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Issue:
03
Pages:
30
JEL classification:
E42, E52, E58
Keywords:
Swiss National Bank, monetary policy, inflation targeting, rules, discretion
Year:
2007

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Author(s)

  • Ernst Baltensperger

  • Philipp Hildebrand
    Member of the Governing Board

  • Thomas Jordan
    Alternate Member of the Governing Board

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