Reference to excessive monetary growth made central banks relatively immune to daily political and fiscal pressure, even in places where institutional independence had not (yet) been established. Control of the money supply lost some of its attractiveness because its central analytical basis was subject to successive erosion. Money demand functions became increasingly unstable. Given some differences between countries on the one hand and the aggregates employed on the other hand - mainly M0 to M3 - the connection between the intermediate target and the ultimate target became more and more unreliable. That was also the case in Switzerland, even if with a time-lag and to a lesser extent than in other countries, notably English-speaking ones. We recorded shifts in cash  BIS Review 35/2000  2  holdings which we could not even explain satisfactorily ex post, much less have forecast them with any degree of accuracy. The central banks reacted differently to this experience. Some rapidly threw money supply targeting overboard. Others - including the SNB - changed from annual to medium-term targets. The extended room for manoeuvre made it possible to consider various indicators in shaping the policy course. One could use the term pragmatically adapted targeting of the money supply. In actual fact, this step came close to a transformation of the money stock from an intermediate target to a monetary indicator, albeit the most important one. The destabilisation of money demand as previously set out has complex reasons on various levels.

On the one hand, deregulation and the opening of markets for products and factors and, on the other hand, the phenomenal progress in information and communications technology.3 On a macroeconomic level, the explanations lead to three possible conclusions. First, to the conclusion that the economy has lost some of its cyclical dynamic, a change which is explained by the increased transparency and more efficient steering of entrepreneurial processes as well as the fact that inventories have been cut or completely eliminated. Second, that there has been a permanent reduction in the natural rate of unemployment which results in an upward shift of the potential output curve and thus to significantly higher growth rates in the transition phase. Third, that there is a gain in long-term productivity growth, ie a steeper potential output curve in future. Academic economists usually react with scepticism to these basically supply-side hypotheses. In fact, they are assumptions which, plausible as they may be, have not been empirically tested. Monetary policymakers cannot simply ignore them because they relate to interconnections which are important for the formulation of policies. It would be just as foolish, however, to accept such theories uncritically and to include them in the decision-making process simply because they sound plausible. In any case, the assertions put forward under the label “new economy” create additional uncertainties. In this particular state of uncertainty, there is growing interest in an ongoing analysis and interpretation of indicators. In this way, one searches for early evidence for the pros and cons of these hypothetical changes.