3  See D. Gerdesmeier, H.-E. Reimers and B. Roffia, “Asset price misalignments and the role of money and credit”, ECB Working Paper Series, No 1068. The authors find that the credit growth gap, the investment-to-  30  BIS Review 10/2010  For example, the global credit-to-GDP ratio gap, an indicator of the risk of speculative bubbles, had exceeded its threshold in mid-2007. Likewise, the credit growth gap and the investment-to-GDP ratio had been on a strong upward trend, signalling the turmoil to come. Looking at the various market segments confirms the excessive ease with which banking credit had been obtained, for instance, the boom in lending to finance leveraged buyouts (LBOs). 4 Fast credit growth in the period leading up to the crisis took place against a background of high capital ratios. 5 This was likely driven by four main factors. First, a large share of the credit granted by large banks, in particular, was shifted off-balance sheet via securitisation. Second, non-banks (financial leasing companies, credit card firms, etc.) also contributed to the credit flow. Third, the high profitability of banks contributed to the bolstering of their balance sheets. Finally, most banks, particularly those in the United States, were operating under the Basel I regime. Increasing risks, therefore, were not fully reflected in minimum capital requirements. The flow of credit, apart from being “excessive”, was in part also channelled to insufficiently productive uses. There was excessive leverage in some sectors, which contributed to the misalignment of underlying asset prices.

Accordingly, the SNB’s monetary policy strategy since the 1970s has been based around a freely floating Swiss franc exchange rate that is not actively managed by the National Bank. This is not to say, however, that the SNB does not take the exchange rate into account in its monetary policy deliberations – on the contrary: because Switzerland is so closely integrated  3  Cf. Kaiser, B. and M. Siegenthaler (2015), The skill-biased effect of exchange rate fluctuations, KOF Working Papers, KOF Swiss Economic Institute, ETH Zurich, 385. 4  Cf. Holmes, T. J. and J. A. Schmitz Jr. (2010), Competition and Productivity: A Review of Evidence, Federal Reserve Bank of Minneapolis Research department staff report, 439. The authors conclude that “nearly all the studies found that increases in competition lead to increases in industry productivity”. 5  Cf., for example, Ekholm, K., A. Moxnes and K. Ulltveit-Moe (2012), Manufacturing restructuring and the role of real exchange rate shocks, Journal of International Economics, 86 (1), pp. 101–117 or Fung, L. (2008), Large Real Exchange Rate Movements, Firm Dynamics, and Productivity Growth, Canadian Journal of Economics, 41 (2), pp. 391–424. BIS central bankers’ speeches  3  into the global economy, both appreciation and depreciation phases have far-reaching consequences for economic and price developments in our country. As a result, exchange rate movements have a major influence on our inflation forecasts. Thus, they also play an important role in monetary policymaking. The SNB thus takes the macroeconomic repercussions of exchange rate movements into consideration.