policy in switzerland. monetary conditions in our country would be determined entirely by the ecb. as a consequence, interest rates would rise close to the level prevailing in the emu. adapting to this new level of interest rates would pose major problems, especially for the real estate sector and for those sectors of the economy which rely on low interest rates to finance their capital - intensive production. second, choosing the right parity in a system with fixed exchange rates is a very difficult task. a peg that would leave the swiss franc overvalued would force the snb to follow a monetary policy that is too restrictive. conversely, a peg that would leave the franc undervalued would lead to a monetary policy that is too lax. third, as a rapid appreciation of the swiss franc would most likely be the result of problems in the emu, it would be illogical to link our currency to an anchor currency whose stability is doubtful and questioned by the markets. we would give up our record of stability in favor of a yet unproven monetary policy. a temporary peg would alleviate some of the problems associated with a permanent fixing of exchange rates. monetary autonomy would be further restricted, but not completely lost. interest rates would thus most probably not rise to the same level as in the case of a permanent peg. however, by placing a temporary ceiling on the exchange rate of the swiss franc, the snb would lose - - albeit temporarily - - control over the money supply. it would thus run the risk of triggering a subsequent rise in inflation. i would regard a temporary peg only as a measure of last resort in the event of extreme exchange rate disturbances. it is sometimes argued that impediments to inflows of foreign capital might be helpful in fighting an appreciation of the swiss franc. historic evidence, however, lends little support to this view. in the second half of the 1970s, switzerland was confronted with a strong appreciation of the swiss franc. to curb this appreciation, our authorities, among other things, tightened existing and introduced additional controls on inflows of foreign capital. these measures proved to be nearly ineffective as they were easily circumvented. today, in an environment of even more integrated markets, the result would be the same. introducing such measures to combat an appreciation of the swiss franc would thus be no solution. consequently, the snb would certainly be able to smooth excessive fluctuations in the exchange rate should doubts about the stability

borrowing to maintain consumption while income growth slowed, households today, at least in the aggregate, are well positioned to maintain or even increase consumption relative to gains in income. to me, at this stage in the business cycle, a historically high household saving rate is a tailwind for the economy, not a headwind. and, of course, recent reductions in personal income tax rates are also a tailwind for the economy. productivity and investment data provide another vantage point from which to assess both the demand and supply sides of the current expansion. over the past few years, we have seen some pickup in productivity growth, albeit from a very depressed pace. by contrast, at a comparable stage in both the 2001 – 07 and 1982 – 90 economic expansions, productivity growth ( as measured by an eight - quarter moving average ) was actually slowing relative to its contemporaneous peak - to - present pace. i should also note that this recent pickup in productivity has coincided with a rebound in business investment, and that this increase in capital spending has been evident in both the equipment and intellectual property categories ; it is not just an “ oil patch ” story. business investment is being supported by recent changes in the tax code that lower the cost of capital as well as by 1 / 4 bis central bankers'speeches continued strong profitability of u. s. companies. while capital investment is one important source of productivity growth and recent data on this front are encouraging, predicting future or even identifying past inflection points in productivity growth is notoriously difficult. although it may be tempting simply to extrapolate a decade of disappointing productivity data into a distant future, a pickup in trend productivity growth is a possibility that deserves close monitoring. 2 let me now turn to the job market and inflation outlook. average monthly job gains continue to outpace the increase needed to provide jobs for new entrants to the labor force over the longer run. at 3. 7 percent in september, the unemployment rate has not been this low since 1969. in addition, after remaining stubbornly sluggish throughout much of the expansion, wage growth is picking up. a sustained rise in inflation - adjusted, or “ real, ” wages at or above the pace of productivity growth is typical in an economy operating in the vicinity of full employment, and we are starting to see some evidence of this. i certainly hope it continues. now, some might see a rise in wages as leading to upside inflationary pressures, but here, again, the experience