Let me focus on some of the most prominent ones: the alleviation of barriers to trade in goods and financial assets, and factors affecting the overall demand and supply of securities. Alleviation of barriers to trade in goods and financial assets Barriers to trade in goods, services and financial assets have been progressively lifted during the last few decades, leading to a growing interaction among national economic systems. This growing interaction and connectedness is what people commonly refer to as globalisation. Countries participating in this process have seen their domestic financial markets become more integrated with markets abroad. Two factors shape and characterise this process. First, technological innovation has sharply reduced transportation and telecommunication costs. Some figures taken from an IMF study illustrate this 1 impressive change . Table 1 Communication and computer costs, 1960-2000  1960 1970 1980 1990 2000  Cost of a 3-minute phone call, New York to London (in 2000, USD)  Price of computers and peripheral equipment relative to GDP deflator (year 2000=1000)  60.42 41.61 6.32 4.37 0.40  1,869,004 199,983 27,938 7,275 1,000  Source: IMF. 1  P. Masson (2001): “Globalization: Facts and Figures”, IMF Policy Discussion Paper 01/04, International Monetary Fund, Washington D.C.  BIS Review 37/2002  1  In only 40 years, telecommunication costs shrank by a factor of about 150, while computer costs became around 1900 times cheaper. As a consequence, information is now disseminated almost in real-time and at low cost. Second, financial crises have become more frequent.

On the contrary, most empirical studies, as you know, show that there is a negative relationship between inflation and output in the long run. Inflation is a tax on financial assets; it distorts investment decisions and increases overall uncertainty. In Switzerland, monetary stability has become part of the country’s culture and has been the guideline of monetary policy for more than 30 years now. After the collapse of the Bretton Woods system in 1973, the Swiss National Bank made it clear that the overriding objective of its policy was to preserve long-term price stability. Convinced that inflation was a monetary phenomenon, it opted for a strategy aiming at a steady growth of the money stock in line with the potential growth rate of the economy. At the time, the Swiss National bank was actually one of the first central banks to adopt a rule-based strategy. Between 1975 and 1999, we implemented a “pragmatic” policy, with monetary targets serving as benchmark and communication devices. Here I would like to emphasize the term “pragmatic”, because it was never the goal of our policy to fulfil monetary targets mechanically. As a small economy with an international currency, we had to face severe exchange rate shocks or money demand instability. In such circumstances, pre-announced monetary targets could not be met. In these particular and difficult periods, however, we never gave up our objective of preserving price stability in the long term. In the late 1990s, day-to-day implementation of monetary targeting turned increasingly difficult because of financial innovations.