These relationships provide useful approximations of the economy's dynamics and the transmission of monetary policy. However, not everything can be captured in mathematical equations or measured with the available data. Furthermore, our assumptions about the behaviour of market participants are drawn from the past, which is often only roughly comparable to a given situation in the present. Policymakers must therefore also look beyond models and form broader – less formal – hypotheses about how the economy and the monetary transmission mechanism function. Model simulations and forecasting must have a prominent place in our decision-making process – not least given the lag in monetary policy's impact on the economy. However, risk assessments and cost-benefit analyses should also involve judgements based on less precisely measurable evidence that cannot be directly incorporated into models. The SNB takes such a pragmatic approach to decision-making. Our policies do not follow a strict rule designed to be optimal with respect to a single model of the economy. Our main inflation forecast is based on a suite of models, as well as judgmental adjustments drawing on a variety of outside information not captured in the models. Such outside information includes monetary indicators and discussions with company managers. Furthermore, our monetary policy decisions are not based exclusively on our inflation forecast. Our forecast is always complemented by a careful risk assessment and comprehensive cost-benefit analysis by the Governing Board. The SNB's pragmatic approach to decision-making allows us to respond quickly and flexibly to different kinds of shocks.

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.