. they also served to counter deflation expectations and prevent a negative price spiral. with short - term nominal interest rates close to zero, further interest rate reductions were soon impossible. this meant that conventional monetary policy, in other words, managing the economy via short - term interest rates, was no longer an option. yet concerns that monetary policy might lack any further instruments were unfounded. the measures that can still be used are often described as unconventional in order to distinguish them from the customary instruments. most central banks in advanced economies make use of these unconventional measures. while the federal reserve and the bank of england are chiefly focused on ensuring a more expansionary monetary policy, the goals of the european central bank ( ecb ) and the snb are somewhat different. in the case of the ecb, its unconventional measures are directed against disruptions in the transmission mechanism of monetary policy arising out of the deterioration in government finances and credit conditions in the single currency area. the snb, for its part, took a stand against an unwarranted tightening of monetary conditions as a bis central bankers ’ speeches result of the strength of the swiss franc – a strength whose origin was to be found in international developments. unconventional measures mainly take one of the following three forms – forward guidance regarding the future path of policy interest rates, quantitative easing ( qe ), or foreign exchange market interventions. 1 what is involved here, and what do we hope to achieve? in the case of forward guidance, the central bank provides explicit information on the expected movement in short - term interest rates. to a certain extent, central banks had already provided such indications previously. this applies, in particular, to countries that communicate their monetary policy on the basis of an inflation forecast conditioned on a given interest rate path. even where this interest rate path – as in the case of switzerland – corresponds to the unchanged current rate of interest, the resulting inflation forecast can provide insights with respect to the interest rate path that may be expected. what is new is that a number of central banks provide explicit information on the length of time they expect interest rates to remain unchanged. this was done by the bank of canada a few years ago and is being carried out at the moment by the federal reserve. according to the expectations hypothesis of the term structure of interest rates, long - term interest rates reflect expected future short - term interest rates plus a risk premium. consequently, if the federal reserve indicates – as it did in september 2012 – that it expects to hold

of 1998. rising unemployment and weak economic activity led the ecb and the snb to adopt an expansive monetary stance and to cut interest rates. broad similitude in business cycle and monetary stance has created conditions leading to an almost fixed exchange rate between the euro and the swiss franc. at the same time, converging fundamentals explain why both currencies have been equally weak against the us dollar : the american business cycle is well in advance of the european and swiss business cycles, requiring a different policy response from the fed. while fundamentals play a key role in explaining long run exchange rate developments, political factors can also be of some importance in the short run. by political factors i mean, for example, elections, government crises, political conflicts or new legislation, but also the relation between the government and the central bank, and the credibility of both. in 1999, these widely defined political factors may have played some role for the relation between the euro and the us dollar. the conflict between the former german finance minister lafontaine and the european central bank, the european undecidedness in the face of the kosovo conflict, and the plans for a harmonization of taxes on interest payments, for example, may have contributed to the weakness of the euro against the dollar. in addition, the not always clear communication strategy of the european central bank concerning its views on the exchange rate of the euro may also have created some uncertainty. however, it is puzzling to see that the relation between the swiss franc and the euro has not been disturbed by these factors. it may be that the markets perceived switzerland as so strongly integrated in europe that they almost forgot that the swiss franc is an independent currency. or, they believed that the swiss national bank, as declared in the early and uncertain days of the introduction of the euro, would not tolerate a sharp appreciation of the swiss franc. expectations of a snb reaction certainly played a role. in my view, a further factor may explain the greater stability of the swiss franc vis - a - vis the european currencies. one cannot exclude that the emergence of a large market for the euro has had a structural impact on the demand for swiss francs. today, the currency diversification of international portfolios occurs between blocks ( dollars, euros, yen and sterling ). given its size and its traditional low volatility vis - a - vis the dm, the market for swiss franc denominated assets does not