. information asymmetries breed mistrust and skepticism. it is much easier to instill trust in an institution if it is open about its goals and strategies. all this enhances the national bank ’ s accountability and reinforces the trust we have fostered. what steps has the national bank taken to improve the transparency of monetary policy? we have a long tradition of setting monetary targets, but since the announcement of our new monetary strategy more than two years ago, the discussion of monetary policy is even more clearly defined by norms, rules and procedures than before. the explicit definition of price stability gives swiss citizens a yardstick for measuring how the central bank has performed. changes to the target range for the policy instrument - the 3 - month libor - are commented by a press release. they are also discussed after each quarterly board meeting, which are fixed in advance. at our biannual press conferences, we provide our assessment of the economic situation. at these occasions, we inform the public how we judge the risks facing the economy and present our inflation forecasts for the next three years. the forecast should guide the public in monitoring inflationary risks. given all this, we have taken the extra step to publish the forecasting models that are used to generate our inflation forecasts. the meaning of faith in financial markets trust is relevant not just for central banks but also for the entire business and financial community. trustworthy business standards are one of the most important forms of social capital. trust is paramount to the efficient operation of financial markets, which is a key ingredient of a well - functioning economy. this trust includes confidence in the people who run the companies, and in those who watch them. it also means that the information required to make sound investment decisions is disclosed fully and accurately. the disclosure moreover must be fair. there must be confidence that insiders are not trading on information unavailable to everyone. only when all these components of trust are in place do we have healthy, efficient financial markets where everyone benefits. what is lost when accounting fraud and the abuse of management power occur? skepticism sets in about the truthfulness of routine financial disclosures. companies find it more expensive to raise funds because once trust is broken, fewer investors are willing to participate, and those who remain demand a premium for the increased risk of being misled. a lack of reliable information also leads investors to make poor investment decisions, so capital is misallocated. in short, financial markets operate less efficiently, with fewer rewards

auditors to prevent cozy relationships undermining the integrity of the audit. a periodic change of the firm might have led to more serious questioning of the accounts. further, some us firms have announced plans to include, as an expense, the cost of executive stock options. the changes aim to more accurately describe the revenues and costs associated with companies ’ primary business. and standard and poor ’ s has introduced new benchmarks for reporting corporate earnings. these are all positive examples of participants working together to enforce the spirit of the rules under which financial markets operate. what has been done recently in switzerland to improve the transparency of swiss financial markets? some efforts have already started some time ago. most notably, the swiss exchange and the swiss business federation “ economiesuisse ” co - ordinated their efforts to develop two sets of rules which became effective on july 1, 2002 : the “ swiss code of best practice ” and the “ directive concerning information on corporate governance ”. this will hopefully lift the standards for corporate governance and improve the level of transparency for the publicly traded firms in switzerland. we have also seen political initiatives aiming at more transparency in remunerations. business uncertainty it would be shortsighted to believe that the recent stock market reaction has only been the result of misconduct and the lack of corporate governance. the world economy is still digesting the consequences from the deep retrenchment in capital spending, which started in 2000 in the high - tech and the telecommunications sectors. the investment climate was further muted by the terrorist attacks of last september, hitting hard other sectors such as air travel, tourism, and insurance. in short, there is considerable uncertainty surrounding the adjustment of investment spending and the dim prospects of corporate earnings. while the worldwide weakness in business investment lies at the very heart of our present problems, at the same time the most recent signals from abroad reveal that new potential risks have emerged. the most recent economic indicators from the united states show that domestic demand is growing less strongly than anticipated. the confidence indices registered a decline for the months june and july. the labor market has recently shown increasing signs of weakness ; both in terms of employment and hours worked. these recent developments weigh heavily against household spending, which has been considered the lifeline of the u. s. economy. the fear is that many households are stretched, adding fears to the strength of household consumption and the resilience of the u. s. economy to withstand further shocks. u. s. households on average have low levels