the years ahead due to climate change. it is an example of a temporary supply shock that can push down inflation well below two per cent even if growth is healthy and inflationary pressures in the rest of the economy are in line with expectations. monetary policy regularly manages these types of temporary shocks, and they are not normally a reason to make monetary policy more expansionary. what can be problematic is if inflation expectations are affected. they sometimes have the tendency to be backward - looking and react strongly to fluctuations in, for example, energy prices. 7 i think it is particularly important to keep a cool head in this situation and keep a careful eye on how underlying inflation, which excludes energy prices, develops. the economic outlook in the medium term is also important, as it says more about the conditions for inflation a couple of years ahead. a slow structural change the other scenario occurs if the climate transition gives rise to a slow structural change, which might, for example, affect inflation for a longer period, the longterm sustainable level of resource utilisation and the long - run real interest rate. 8 in contrast to other structural changes in the economy, such as demography and digitalisation, which are considered by many to dampen inflationary pressures, the effect of climate change on inflation is more uncertain. this also applies to the effect on resource utilisation and the long - run real interest rate. here, we need both more data and more analysis in the coming years to gain a better understanding of these mechanisms and of how monetary policy can and should react to this type of slow structural change in the economy. 9 central banks strive to stabilise resource utilisation around a long - term sustainable level. we know at the same time that climate risks and other environmental problems are mispriced, and i will come back to why this is so later in my speech. how we, as a central bank, should consider this and other market failures is far from obvious. bearing in mind the potentially serious consequences of mispriced see cœure ( 2019 ) for a discussion. see brainard ( 2019 ). see debelle ( 2019 ). 6 climate risks, i would welcome a debate on the various benefits and drawbacks of taking this market failure into account. 10 a severe economic crisis the final and third scenario is the most serious – a severe economic crisis. the transition to more sustainable development could trigger dramatic and rapid changes in financial markets, and in the worst case a

pressure, and by midjanuary 2015, it had become clear that it was no longer sustainable. had the snb not acted as it did in discontinuing the minimum exchange rate against the euro, it would have been forced to buy enormous amounts of foreign currency. the snb ’ s balance sheet would have expanded rapidly, potentially to a size that would have severely impaired our ability to fulfil our constitutional mandate in the long term. since the discontinuation of the minimum exchange rate, the snb ’ s monetary policy has been based on two pillars, which are designed to mitigate upward pressure on the swiss franc and to ensure price stability over the medium term. the first pillar is the negative interest rate on sight deposits at the snb. the second pillar is our willingness to intervene on the foreign exchange market as required. these two pillars are complementary and mutually reinforcing policy instruments. bis central bankers ’ speeches the negative interest rate the negative interest rate applies to sight deposits above a certain threshold, held by banks and other financial market participants at the snb. this threshold was introduced to limit the financial burden on banks. it was set at 20 times the minimum reserve requirements. by linking the threshold to the statutory minimum reserve requirement, the snb adopted a measure that is both firmly anchored in law and for which clear rules exist. for depositors that are not subject to minimum reserve requirements, a fixed exemption threshold of at least chf 10 million has been set. the thresholds imply that banks which hold large sight deposits relative to their minimum reserve requirements are affected most by the negative interest rate. thus, like any other monetary policy measure, the negative interest rate affects different market participants differently. however, in the interests of the swiss economy as a whole, it is important that the negative interest rate be allowed to function as effectively as possible, by applying it broadly and keeping exceptions to a minimum. the aim of the negative interest rate is to reduce the relative attractiveness of swiss franc investments, and to counter upward pressure on the exchange rate. hence, it is primarily directed at the external contributions to monetary conditions in switzerland. as such, the negative interest rate is not an ordinary policy instrument. it is a consequence of the fragile international environment and its exceptionally low interest rates. historically, swiss interest rates have been lower than those of our main trading partners. this interest rate differential is a reflection of our country ’ s long - standing strengths, including political stability, sound