particular, the desired stance of monetary policy. the negative interest rate on sight deposits that commercial banks hold at the snb is the main instrument with which the snb implements monetary policy on the money market. the exemption thresholds allow the burden on the banking system to be reduced without jeopardising the snb ’ s ability to keep secured short - term money market rates, in particular saron, close to its policy rate. as you can see, the snb has the instruments needed to steer money market interest rates, including during times when these interest rates are in negative territory. however, a wellfunctioning money market requires not only that the central bank possess a set of effective instruments. it also requires a sound infrastructure on which financial market participants – the snb included – may conduct their trades in a reliable, efficient and transparent manner. thus, as we arrive at the end of this talk, let us say a few words about the money market infrastructure in switzerland. the role of a sound money market infrastructure to function smoothly, the money market requires a sound and efficient infrastructure. as we have argued, the money market is important for implementing monetary policy, for redistributing liquidity between banks, and for determining reference rates ; it is clearly one of the cornerstones of the swiss financial system. it is therefore vital that the associated market infrastructure is secure and robust. this has been the case for more than 20 years thanks to the highly efficient swiss money market value chain. this system seamlessly covers the entire life cycle of secured transactions, i. e., the whole value chain from trading to settlement, both on the cash side and on the collateral side. the swiss money market value chain, which is a joint enterprise of swiss financial institutions, is operated by six group, and the snb has been involved in shaping its development since its inception. the design of the swiss money market value chain is unique internationally and has proved its worth. a key characteristic of the swiss money market value chain is that it provides access to about 150 banks and other financial market participants using a single platform and a common set of rules. another characteristic is that the snb has direct access to this platform, through which it also conducts its monetary policy operations. the broad array of participants, the high degree of standardisation, and the fact that interbank trades and snb monetary policy operations in the money market are conducted on the same platform help foster market liquidity, transparency and trust among participants

bound on nominal interest rates. these risks imply that undershooting a zero inflation objective is potentially more costly than overshooting that objective by the same amount, and that setting the inflation objective at a rate a bit above zero provides some insurance against these risks. downward nominal wage rigidities. inflation at rates close to zero might create nonnegligible costs to the economy because firms may be relatively reluctant to cut nominal wages. 7 sticky nominal wages can prevent labor markets from reaching the optimal equilibrium. however, empirical evidence from switzerland and japan indicates that in an environment of deflation or very low inflation, downward nominal wage rigidities become less prevalent. 8 debt deflation. keeping the average inflation rate close to zero increases the likelihood that the economy will experience occasional episodes of deflation. deflation can be particularly dangerous for an advanced economy, in which debt contracts often have long maturities. as described by irving fisher ( 1933 ), an episode of deflation can lead to " debt deflation, " that is, a substantial rise in the real indebtedness of households and firms, because the nominal values of debt obligations are largely predetermined whereas the nominal values of household income and business revenue are falling together with the general price level. 9 indeed, the deterioration of the balance sheets of households and firms can result in financial turmoil that contributes to further deflation and greater macroeconomic instability. the zero lower bound. with a very low average inflation rate, monetary policy is also more likely to encounter circumstances in which short - term interest rates are constrained by the so - called zero lower bound on nominal interest rates. 10 specifically, investors will never choose to lend money at a negative nominal interest rate because they always have the option of simply holding cash at a zero interest rate ; thus, nominal interest rates cannot fall below zero. a number of researchers in the federal reserve system and elsewhere have analyzed the implications of the zero lower bound in estimated dynamic rational expectations models. 11 if the economy faces a large contractionary shock, the optimal monetary policy response is to akerlof, dickens, and perry ( 2000 ). the main idea can be described as follows : during periods of low productivity growth and no inflation, firms that need to cut their relative wages can do so only by cutting money wages. in the presence of downward nominal wage rigidities, firms will keep relative wages too high and employment too low. hence, very low rates of inflation might prevent real wages from adjusting downward in response to declining