jean - pierre danthine : monetary policy is not almighty speech by mr jean - pierre danthine, vice chairman of the governing board of the swiss national bank, at the journee solutions bancaires, geneva, 31 may 2012. * * * ladies and gentlemen, it is a great pleasure for me to be here with you all today. at the outset, please allow me to thank the organisers at unicore for having invited me to speak at the 14th journee solutions bancaires to be held here in geneva. today, i will reflect on what monetary policy can and cannot do. i would like to emphasise where central banks ’ powers and responsibilities end and where those of fiscal policy and the private sector begin. “ why is he focusing on this now? ” i hear you ask. “ we are in the midst of a crisis. shouldn ’ t he be emphasising what central banks can do, instead of what they cannot? ” my answer to you is this : while the monetary policy measures taken in recent years have had a stabilising effect, today, monetary policy has acquired a degree of prominence that could lead to its powers and its reach being overestimated. central banks are far from almighty and, in efforts to emphasise this, i will review the various policy options at the zero lower bound and the risks associated with the measures currently in place. i will first examine the issue in universal terms, before concentrating on the very unusual case of switzerland. conventional policy options at the zero lower bound conventional macroeconomic theory states that, when interest rates are at the zero lower bound, monetary policy becomes ineffective and economic policy action should concentrate on fiscal measures. in slide 1, the depiction of the economy using the standard is / lm model summarises this point of view. as you can see, the economic situation is represented in terms of two key variables, the interest rate and output ( or gdp ). economic equilibrium is represented by the intersection of the is and lm curves. the first corresponds to the interest rate and gdp levels that balance savings and investment and the second represents the combinations of these two variables, which equilibrate the demand and supply of money. expansionary monetary policy corresponds to pulling the lm curve to the right. when interest rates are at the lower bound, however, the lm curve is horizontal. at this point, pulling a horizontal to the right has absolutely no impact on the intersection of the

. implementation of some of the recommendations cannot be done without a joint effort with statistical officers in the financial sector, most of whom are present here today. ladies and gentlemen, there are varied uses of the banking data. the government uses it, among other data, for economic planning. the central bank uses it for the formulation and implementation of monetary policy and monitoring of the financial system. the challenge currently for example is to monitor portfolio capital flows and disentangle from remittances. i am sure all the institutions represented here make use of data in one way or another. for example, consolidated banking statistics are normally shared with the banking industry. this is not to mention other users of our statistics including the private sector, international investors and researchers. with such an immense use, it is important that the data collected is accurate and reliable. secondly, the dynamic nature of our economies necessitates that we become dynamic in our approach to data compilation. new innovations, for example, new financial instruments, which impact on the monetary policy formulation and implementation, continue to come up. it is in this regard that the central bank has produced a revised draft data reporting form which will be discussed in this workshop. ladies and gentlemen, besides the accuracy, and reliability time is of the essence in data compilation and dissemination. data must be up to date and accurate. i therefore urge you all to observe cbk deadlines for the submission of the various returns as indicated in the various banking circulars. as far as having accurate and reliable data is concerned, we are all together, not just as a country, but with the rest of the world. as i conclude, let me welcome you once again to ksms. to get maximum benefits from this workshop i urge all the participants to actively contribute in discussions and raise with the resource persons any issues that you think present grey areas. it is now my pleasure to declare the workshop officially open. thank you.