On the nominal side, our two countries' links with the euro area differ markedly. Swiss and euro area inflation have a correlation of 39%, which, although low, corresponds to the average correlation of inflation rates within the euro area itself. Israel's inflation shows a weaker link here, displaying a correlation with euro area inflation of only 19%. Comparing again the levels instead of the correlations, Switzerland has a long tradition of monetary stability with an inflation rate that has been clearly lower than those in Israel and the euro area. Over the last five years, the average inflation rates were 0.8% in Switzerland, 2% in Israel and 2.2% in the euro area. While for Switzerland, low and stable inflation is not particularly noteworthy, it is important to remember that price stability in Israel is a recent achievement and that inflation remains relatively volatile here. Overall, this quick look at the data suggests that Israel and Switzerland have different records in terms of stability, that both countries are highly integrated into the euro area, but that, for obvious reasons, Switzerland seems to be more "European" than Israel. If Switzerland is indeed as integrated as any regular euro area member, what advantages do we see in maintaining our monetary independence, while our neighbours have abandoned their national currencies in favour of the euro? Reasons for monetary independence As you well know, the large majority of European countries have come to the conclusion that adopting the euro is beneficial.

The heady days of the Great Moderation were restrained by geopolitical uncertainty. During the financial and euro crises, by contrast, economic uncertainty dominated. And from 2012 onwards, with the abatement of the acute phase of the euro-area crisis, economic uncertainty began to fall back, only to be replaced by renewed geopolitical tensions and now sharply higher policy uncertainty (Chart 4). Chart 3 UK economic policy uncertainty has increased since the global financial crisis, rising sharply higher in early 2016  Source: Bank calculations and Baker et al, (2015), ibid. Chart 4 Three eras of uncertainty: geopolitical from 9/11 to 2008; economic uncertainty from 2008 to 2012; and policy uncertainty today  Source: Bank calculations and authors cited in Charts 1–3 above. Economic policy and geopolitical uncertainty indices are de-meaned and shown relative to their respective standard deviations. Chart shows two-year centred moving average for each measure. 4  BIS central bankers’ speeches  2. What do the combined effects of uncertainty mean? All this uncertainty has contributed to a form of economic post-traumatic stress disorder amongst households and businesses, as well as in financial markets – that is, a heightened sensitivity to downside tail risks, a growing caution about the future, and an aversion to assets or irreversible decisions that may be exposed to future “disaster risk”.7 There may be an affect heuristic at work. Put simply, long after the original trigger becomes remote, perceptions endure. They become embedded in economic narratives and their salience persistently affects risk perceptions and economic behaviour.