; first for m1, and eventually for the monetary base. in 1978, the snb abandoned its monetary target for a short period in favor of a nominal exchange rate target. 2 during the second half of the 1990s, the monetary base became instable. the snb faced increasing difficulty using a money target for mo, let alone to communicate through them. finally, the snb decided to adopt an altogether new monetary framework in an effort to increase the clarity, transparency, and flexibility of the conduct of its monetary policy. the new concept, introduced in january 2000, is based on three elements : an explicit definition of price stability, an inflation forecast as the main indicator for policy decisions, and a range for the 3 - month libor as the operative target. in contrast to the ecb ’ s two - pillar strategy, the snb decided at the time to adopt an integrated approach. for the purpose of today's discussion, i would like to highlight two important elements of the snb ’ s monetary framework. first, communication considerations were an important element in the design of the new framework. clearly inspired by the early inflation targeters, a definition of price stability and a quarterly inflation forecast became the primary communication tools with regard to monetary policy. these were considered to be clearer than the alternative of attributing a specific role to monetary aggregates. in other words, the two pillar model of the ecb was rejected primarily on the grounds of communication considerations. second, the new monetary framework was deliberately designed to allow sufficient room for judgment and flexibility in the conduct of policy. the inflation forecast as the main indicator for policy decisions is derived from a " portfolio " of models and indicators. some of these models contain monetary aggregates ; others don ’ t. the weights assigned to different models and indicators are allowed to vary over time as their reliability and applicability may also vary across different economic situations. empirical studies backed the " portfolio of models " approach. empirical evidence drawing on six years of swiss data suggests strongly that combining inflation forecasts from different models and specifications improve the forecasting accuracy of the snb ’ s inflation forecasts. 3 of course, the snb does not claim to have solved the fundamental problem of linking monetary and non - monetary analyses. the governing board feels strongly, however, that there are significant advantages in aggregating the information from our different models and indicators in an internal process and subsequently publish a single snb inflation forecast. let me simply mention the most obvious

similarly, friedman ( 2005 ) showed that pre - and post - financial market crash evolutions of stock prices and gross domestic products were strongly related to the pre - and post - market crash evolutions of monetary aggregates. white ( 2006 ) pointed to the need of pushing further the frontiers of economic research in the direction of incorporating financial variables to assess longer - term macroeconomic developments. mckinsey ( 2005, 2006 ) king case of the snb, the flexible nature of the policy framework and the importance attached to money and credit variables means that in an effort to avoid potential long - term financial distortions from emerging, the governing board could conceivably tighten monetary policy even if our inflation forecast signals no imminent inflation threat. 5. references baltensperger, ernst, thomas j. jordan and marcel savioz, 2001. the demand for m3 and inflation forecasts : an empirical analysis for switzerland. weltwirtschaftliches archiv, vol. 137 n. 2, pp. 244 - 272. fischer b., m. lenza, h. pill and l. reichlin ( 2006 ). money and monetary policy : the ecb experience 1999 - 2006. friedman, milton, 2005. a natural experiment in monetary policy covering three episodes of growth and decline in the economy and the stock market. journal of economic perspectives, vol. 19 n. 4, pp. 145 - 150. issing, ottmar, 2002. monetary policy in a changing environment. contribution to the jackson hole symposium on " rethinking stabilization policy ", federal reserve bank of kansas city. jordan, thomas j., michel peytrignet, and georg rich, 2001. the role of m3 in the policy analysis of the swiss national bank. in : klockers, h. - j., and c. willeke, eds., monetary analysis : tools and applications, european central bank, pp. 47 - 62. jordan, thomas, und marcel savioz, 2003. sind kombinationen von prognosen aus var - modellen sinnvoll? eine empirische analyse mit inflationsprognosen fur die schweiz. quartalsheft der snb, 4, dezember 2003. king, mervyn, 2006. speech at the dinner for kent business contacts, ashford, kent, united kingdom. mckinsey & company. 118 trillion and counting : taking stock of the