Globally, stable inflation expectations and the underutilisation of capacity suggest that there is no inflationary pressure. According to the SNB’s inflation forecast, price stability in Switzerland is not under threat for the next few years. As the crisis recedes, however, central banks will face the challenge of returning monetary policy to normal in a timely manner and reabsorbing liquidity. The SNB’s mandate is to ensure price stability while taking due account of economic developments. We will continue to take all action necessary to fulfil this mandate. 8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  References Alesina, Alberto and Lawrence H. Summers, 1993. Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence. Journal of Money, Credit and Banking 25(2): 151–62. Barro, Robert J. and David B. Gordon, 1983. Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics 12(1): 101–121. Bernholz, Peter, 2003. Monetary Regimes and Inflation – History, Economics and Political Relationships. Edward Cheltenham: Elgar Publishing. Budina, Nina, Tidiane Kinda, Andrea Schaechter and Anke Weber, 2012. Fiscal Rules at a Glance: Country Details from a New Dataset. IMF Working Paper 12/273. FDF, 2012. Die Schuldenbremse – eine Erfolgsgeschichte. www.efd.admin.ch/ dokumentation/00737/00782/02006/index.html?lang=de (20 November 2012). Feld, Lars P. and Kirchgässner, Gebhard, 2008. On the Effectiveness of Debt Brakes: The Swiss Experience. In: Sturm, J. E. and R. Neck (eds. ): Sustainability of Public Debt.

In the fiscal policy domain, the elements of a good rule are: It is clear and easy to understand; it is binding, i.e. has a basis in law – ideally at the constitutional level; and it is equipped with a specific sanctioning mechanism. Finally, it must make provision for exceptions, and these should be clearly defined. In the monetary policy domain, too, there are certain requirements regarding what makes a good rule. First, it must set out how the central bank should use its policy tools to achieve the goal of price stability. It defines criteria according to which monetary policy measures are taken. For many central banks, inflation forecasts play an important role. On the one hand, they serve as the main indicator for the interest rate decision. On the other, they are an important communication tool. A good rule creates a certain degree of transparency vis-à-vis the public, and makes monetary policy more predictable. It provides an anchor for inflation expectations and helps to improve the credibility of monetary policy. Second, we need a culture of stability which is well anchored in the minds of both politicians and the general public – part of the national mentality (cf. chart 6). Economic literature has repeatedly demonstrated that certain political structures and a culture of stability are mutually reinforcing. 7 For fiscal policy, these structures can be, for example, fiscal federalism (tax competition), the subsidiarity principle, direct democracy structures and political continuity (e.g. the concordance principle).