##ial rule, has the property that the policy rate changes only slowly over time. i tend to think of it as an approach that captures the reaction function of a policymaker in a stable economy where the forces that would tend to change the economy and policy build over time. when change does occur, a gradual response may give policymakers time to assess the true state of the economy and the possible effects of their decision. one example i can use is the steadfastness of policymakers in the latter part of 2023, when inflation fell more rapidly than was widely expected, and again in early 2024, when it briefly escalated. the fomc did not change course either time, an approach validated by inertial rules. a non - inertial rule, on the other hand, allows and in fact calls for relatively quick adjustments to policy. the guidance from these rules is more useful when there is a turning point in the economy, and policymakers need to stay ahead of events. one saw these non - inertial rules prescribe a sharper rise in the policy rate above the effective lower bound starting in 2021 as inflation began climbing above the fomc's 2 percent target. non - inertial rules are also more useful in the face of major shocks to the economy such as the 2008 financial crisis and the start of the pandemic. the great promise of rules is that they provide a simple and reliable guide to policy, but what should one do when different rules recommend different policy actions given the same economic conditions? right now, inertial rules tell us to move slowly in reducing policy rates toward a neutral stance that neither restricts nor stimulates the economy. on the other hand, non - inertial rules tell us to cut the policy rate more aggressively, subject to the caveat that one is certain of the values of all the'star'variables : u *, y * and r *. i think the answer is that while rules are valuable in helping analyze policy options, they have limitations. among these are the limits of the data considered, which is typically narrower than the range of data that policymakers use to make decisions, 4 / 6 bis - central bankers'speeches and also the fact that simple policy rules do not take into account risk management, which is often a critical consideration in policy decisions. so, while policy rules serve as a good check on discretionary policy, there are times when discretion is needed. as a result

thus, the evolution of the swiss franc sticks closer to our economic fundamentals. i will address this issue more extensively later on and argue that this trend can be generalized to apply to other currencies as well. b ) the euro as a means of payment those who thought that the euro would make the swiss franc obsolete as a means of payment were also mistaken. true, our atm machines have been adapted to provide euro banknotes, so that it is now possible to pay in euro almost everywhere in switzerland. yet, despite these efforts, the demand for euro notes is still weak and those notes do not circulate any more extensively than french francs, italian lira and german marks used to. in stores and restaurants, prices denominated in euros are usually not very attractive. obviously, small shop and cafe owners are not thrilled by the idea of accepting cash payments in euros. anyway, they cannot offer as good financial services as commercial banks or credit card companies! c ) monetary autonomy the last fear we had was related to the potential loss of monetary autonomy. could switzerland, a country completely surrounded by the euro zone, possibly hope to implement an interest rate policy different from the one of the european central bank? with the loss of its monetary identity, switzerland would have seen its interest rates, traditionally below german rates, converge to higher european interest rates causing severe pains to the swiss economy. fortunately, we did not experience this outcome. first, in the months following the introduction of the euro, it became apparent that markets were not anticipating a pegging of the franc to the euro. an expected peg would have generated a convergence in interest rates, which simply did not happen. second, and as could have been expected, the monetary needs of the swiss economy differed from those of the euro zone : • as an open economy strongly oriented towards global markets, the swiss economy felt more deeply the slowdown in global trade than the euro zone. • furthermore, the swiss franc kept playing its role - although to a smaller extent - of safe haven in tense international situations. • finally, swiss inflation was considerably lower than inflation in the euro zone, where adjustments and catch - up phenomena took place. facing this reality, we decided to act independently and lowered interest rates initially in march 2001, a few months before the european central bank. then, seeing a clear economic slowdown and a strengthening of the swiss franc, we lowered interest rates repeatedly and aggressively. the magnitude of our policy loosening