Thomas Jordan: Decision-making under uncertainty - the importance of pragmatism, consistency and determination Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Swiss National Bank (SNB)-Federal Reserve Board (FRB)-Bank for International Settlements (BIS) High-Level Conference on "Global Risk, Uncertainty, and Volatility", Zurich, 8 November 2022. *** Ladies and gentlemen It is my pleasure to welcome you to this high-level conference on global risk, uncertainty and volatility. Thank you all for accepting our invitation to join the discussions. I am very pleased to see such a distinguished group of central bank officials and academics. I would like to thank our colleagues at the Bank for International Settlements and the Federal Reserve Board for working together with us in organising this event. The topic of this year's conference is inflation risk and uncertainty. It could not be more timely. This is not to say that uncertainty is a new phenomenon for monetary policy – on the contrary, monetary policy always operates under uncertainty. However, the outbreak of the war in Ukraine has increased uncertainty about further economic developments and inflation to an exceptionally high level. In addition, inflation risks have shifted from being persistently on the downside to the upside. The high level of uncertainty is also reflected in less reliable predictions. Over the past two years, we have had to revise our inflation forecasts continuously and significantly. How do policymakers handle this situation of high uncertainty, upside risks to inflation and limited reliability of forecasts?

How do they decide when and how strongly to tighten monetary policy? Like many central banks today, the Swiss National Bank follows an approach to decision-making based on risk management. In theory, this is relatively simple. We focus not only on the most likely path of the economy, but also take into account a range of possible outcomes around that path. In doing so, we weigh the potential costs and benefits of different policy measures. Of course, real life is more complicated. Our understanding of the economy is inherently imperfect. Economic models have a limited ability to capture the truth and predict the future. So how do we deal with this complexity and uncertainty in practice? Can we deduce some general principles for decision-making? My introductory remarks will address three such principles, namely pragmatism, consistency and determination. Where relevant, I will touch on our experience in Switzerland. I will begin with pragmatism. Pragmatism  1/4  BIS - Central bankers' speeches  In light of our limited knowledge about the economy and the influence of monetary policy, decision-makers are well advised to be pragmatic. They should choose policies that exhibit a certain degree of robustness to different circumstances. Rather than seeking measures that are optimal in the context of specific situations, decision-makers are better off adopting less ambitious policies that produce reasonably good results in a sufficiently large variety of scenarios. In analysing such scenarios, we work with models that incorporate a relatively small set of key relationships.