speech embargo 17 november 2016, 6. 30 pm financial markets and monetary policy implementation – an evolving relationship money market event andrea m. maechler member of the governing board ∗ swiss national bank geneva, 17 november 2016 © swiss national bank ( speech given in french ) ∗ the speaker would like to thank dirk faltin and martin weder for their valuable support in drafting this speech. she also extends her thanks to roman baumann, oliver gloede and marco huwiler for their helpful comments, to ramon jud for preparing the data and to the snb language services. page 1 / 8 ladies and gentlemen welcome to the snb ’ s money market event in geneva. it is a great pleasure for me to be able to address you here today for the second time. last year, my speech centred entirely around monetary policy itself. today, i would like to focus on its implementation in the financial markets. as you know, central banks in the advanced economies have expanded their monetary policy toolkits considerably since the peak of the global financial crisis in 2008. this has changed the way in which they act on the financial markets. traditionally, the money market interest rate has been the key monetary policy variable. in the last few years, central banks have used unconventional measures to exert a more or less direct influence on other financial market prices as well. this was and is the only way to fulfil their mandate in difficult times. as a result, central banks today focus more than they used to on developments in the financial markets. the swiss national bank, too, has deepened its understanding of the markets, refined its analytical tools and strengthened its market contacts. i will say more about that later in my speech. first, i would like to talk about the expansion of the monetary policy toolkit and what that involves. in the final part of my speech, i will offer a few thoughts on the extent to which unconventional monetary policy measures have changed the interactions between monetary policy and the financial markets. monetary policy transmission using only a single instrument in principle, monetary policy influences economic and price developments via the banking system and the financial markets, since a central bank conducts its monetary policy by using its monetary policy instruments to target certain prices on the financial markets. monetary policy stimuli are thus transmitted via the financial markets to the economy. the choice of instrument is dictated by the monetary policy framework. in the pre - crisis era, so up to about 2007, central banks were in general agreement about

this is where the snb comes in. according to the national bank act, it is responsible for ensuring price stability, while taking due account of economic developments. by fulfilling this mandate, the snb makes a major contribution to a stable macroeconomic environment, and hence indirectly to the competitiveness of the swiss economy ( cf. chart 5 ). 2 from a historical perspective, the snb has successfully fulfilled its monetary policy mandate. long - term average inflation is lower and less volatile in switzerland than in most other countries ( cf. chart 6 ). as a result, the swiss franc has lost less purchasing power over time compared to other currencies. the generally stable economic and political environment in switzerland is one of the reasons why the swiss franc is popular with investors and has a tendency to strengthen. thus, a financial and monetary policy that successfully contributes to macroeconomic stability is both a basis for competitiveness on the part of swiss companies and a driver of swiss franc strength ( cf. chart 7 ). this is especially the case in times of heightened uncertainty. competitiveness and the strong swiss franc but aren ’ t these two consequences of a stability - oriented economic policy at odds with each other? or, to put it another way : does a strong franc really lead to a reduction in competitiveness? it is essential to differentiate between the short and long - term impact of a strong currency on competitiveness, and it is these differences which i will now examine in the second part of my remarks. in the short term, the answer is obvious : an appreciation makes swiss companies less competitive on prices than their foreign rivals ( cf. chart 8 ). it becomes harder for them to sell their products and services at a price that covers the costs involved. the increased pressure on margins forces many companies to make adjustments. without a doubt, these adjustments are painful and require a high degree of innovative thinking, a willingness to take risks and flexibility, from both employers and employees. if need be, companies may have to withdraw the global innovation index is published by cornell university, insead and the world intellectual property organization ( wipo ), and covers 143 countries. the innovation union scoreboard is a european commission tool for evaluating the innovation performance of eu member states and other european countries such as switzerland. as part of its mandate, the snb must also contribute to the stability of the financial system. a well - functioning system of bank lending is also an important pillar of macroeconomic stability. however