can now identify a widely - shared mind - set regarding prices in financial markets that bred the crisis. today, i would like to illustrate the shortcomings of this mind - set from two angles. one is the fact that financial markets can and sometimes do overshoot. the other is that there is only so much information that could be extracted from prices in financial markets. the prevailing view before the crisis drew an important conclusion from the apparent “ random walk ” of market prices, which reflected all available information. prices changing at random, most often reflecting new information, were regarded as the best estimate of the intrinsic value of financial instruments. in such a market, a market participant that consistently makes mistakes and keeps on selling low and buying high will inevitably be forced out because of mounting losses. consequently, the market will have to be populated by participants who can generally make the right calls, and a market populated by such well - informed participants should not be susceptible to persistent price overshoots. as a footnote, short selling and derivatives are seen as beneficial practices in this context, because they will allow market participants to bet against misalignments more easily and cheaply. why, then, do bubbles appear? in other words, how can market prices continue to overshoot for a long time? one way to answer this question is to place the blame on market participants ’ excess optimism. when market participants become too optimistic, this distorts market prices, which then begin to overshoot. this can even happen among perfectly rational market participants, because the intrinsic value of any financial instrument cannot be observed. prices in the market may be “ fair value, ” in the sense that this is the best of all available estimates. nevertheless, that does not guarantee that the market price equals the intrinsic value. in order for that to happen, market participants have to compete to determine the for a discussion of the prevailing monetary policy framework, see mervyn king, “ twenty years of inflation targeting ” ( the stamp memorial lecture at the london school of economics ), october 9, 2012. http : / / www. bankofengland. co. uk / publications / documents / speeches / 2012 / speech606. pdf. see also masaaki shirakawa, “ revisiting the philosophy behind central bank policy ” ( speech at the economic club of new york ), april 22, 2010. http : / / www. boj. or. jp / en / announcements / press / koen _

philipp hildebrand : ( the ) productivity ( imperative ) summary of a speech by mr philipp hildebrand, vice - chairman of the governing board of the swiss national bank, at avenir suisse, zurich, 24 september 2007. the complete speech can be found in german on the swiss national banka€™s website ( www. snb. ch ). * * * just a few years ago, the weak growth of the swiss economy was a dominant topic in public debate. for four years now, the economy has been advancing strongly. is this merely a cyclical boom? or has structural change taken place, affecting both productivity and the associated potential growth path? this would have far - reaching implications, not least for monetary policy. a number of factors indicate that structural change is indeed occurring and that this could ultimately result in an increase in the underlying productivity trend. however, time lags and cyclical distortions make it difficult to identify such changes.