in this period for one reason and one reason only : the zero interest rate lower bound had been reached and the economic situation unequivocally called for looser, not tighter, monetary conditions. the goal was to maintain price stability, which meant, in these circumstances, avoiding deflation. one should always have in mind that there are no clear recipes for avoiding a deflationary trend in such a situation. the most famous illustration of this statement is the us experience in the late 1920s and early 1930s. at the time the us policymakers underestimated the consequences of a bout of deflation and failed to take aggressive action. the consumer price index ( and the gdp deflator ) declined by 24 % from august 1929 to march 1933, after having been virtually flat from 1921 to 1929. this decline was accompanied by a fall in real gdp of almost 30 percent. 9 a more recent example is japan ’ s “ lost decade ”. there the situation was not underestimated to the same degree. however, public actions culminating in a doubling of japanese public debt proved to be insufficient to avoid a protracted deflationary episode. let me review the history of our interventions in more detail. at the beginning of 2009, the severe downturn in the global economy had translated into a very serious threat of deflation in switzerland. for example, the inflation forecasts produced by the imf showed inflation in switzerland to be in negative territory for two years in a row. price stability was evidently not assured. the substantial increase in the value of the swiss franc since the beginning of financial crisis represented an inappropriate tightening of monetary conditions. yet, it was imperative that monetary conditions be kept as loose as possible, a fortiori to avoid a further monetary tightening. given that the interest rate was effectively at a zero level, the snb decided to prevent any appreciation in the swiss franc with respect to the euro from march 2009 on. the snb achieved this goal by repeatedly intervening in the foreign exchange market during the course of 2009. this policy was maintained until the monetary policy assessment ( mpa ) of december 2009. by the end of 2009, the economic situation was showing some signs of improvement and the threat of deflation was estimated to have diminished. as a consequence, the snb decided that a certain appreciation in the swiss franc could be allowed without price stability being compromised. at the december mpa, the snb therefore announced that it would act there are, however, twice daily

##ber working paper series ( nber working paper no. 15223 ), august 2009. this could be a reasonable approximation. see gorton ( 2009 ) : “ slapped in the face by the invisible hand : banking and the panic of 2007 ”, prepared for the federal reserve bank of atlanta ’ s 2009 financial markets conference, may 2009 ; and gorton and metrick ( 2009 ). chart 4 illustrates the average repo haircut on structured debt. this is a good indication for an overall “ haircut index ”, as shown by gorton and metrick ( 2009 ). another important difference is that the swiss repo market is conducted on a highly efficient automated and centralised platform while us repo transactions are traded over the counter. hordahl and king ( 2008 ). however, these numbers are estimates given that almost all of the repo transactions are conducted over the counter. see also imf ( 2010 ), global financial stability report, october 2010. bis central bankers ’ speeches there is no new information but only the application of the existing and published criteria. compared to many other central banks, the definition of eligible collateral is unusually open in the sense that the snb is rare among central banks in accepting securities denominated in foreign currencies and not only in its home currency, the swiss franc. the quid - pro - quo of this multi - currency policy is that securities eligible for snb repo transactions must satisfy stringent quality requirements : these requirements concern their credit ratings and liquidity properties. this policy is coherent – open but strict! – and it has substantial advantages. first, no initial margin or haircut is applied during standardised repo transactions, making the system more capital efficient. 8 second, it allows a broad range of financial institutions to participate, including many international banks. third, it creates incentives for banks to hold high - quality, liquid assets in their balance sheets. finally, as already suggested, this highly credible collateral policy has resulted in snb eligible collateral becoming the standard for the secured interbank money market in swiss francs. this, in turn, has made an essential contribution to creating a robust secured interbank market and thereby keeping interbank credit lines open at all times during the crisis. ii. the snb ’ s interventions in foreign exchange markets let me now move on to my second main point, the interventions in foreign exchange markets carried out by the snb during 2009 and 2010. the snb acted on foreign exchange markets