on rational expectations to wage and price dynamics, macroeconomics, econometrics, fiscal policy, and, of course, monetary policy. he has written an impressive number of influential articles in leading journals and important books. it is impossible to summarise his research in a few sentences. therefore, i will limit myself to two topics. the first topic dates back to the second half of the 1970s, when john initiated a research strategy that would have a profound and lasting impact on our profession. it was a time when the new - classical macroeconomists were claiming that monetary policy was powerless when it came to steering the economy. this challenged both the keynesian and the monetarist views. john quickly accepted the new concept of rational expectations. however, he rejected page 2 / 4 the assumption that markets always clear, and that prices and wages are perfectly flexible. his research showed that – as a result of staggered wage contracts – monetary policy, even if anticipated, can be useful for stabilising the economy. this restored the proposition of keynesian and monetarist models that even anticipated changes in money affect the economy. the second topic i would like to highlight is a recurrent theme in john ’ s research agenda. this is his deep interest in rules for monetary policy. john ’ s research has always emphasised the importance of rule - like, systematic behaviour for monetary policy. however, by the late 1980s, many people were arguing that efficient rules would have to be very complex, and expressed severe doubts about the practicability of rules for monetary policy. so john decided it was time to write down a workable rule that was consistent with his research. the result was a simple equation to guide interest rate decisions at the fed. the equation related the policy rate to inflation and unemployment. when he presented his rule at a carnegierochester conference in november 1992, he did not regard it as a big deal. it turned out quite differently. his paper, published in 1993, has become one of the most cited works in macroeconomics. the rule became known as the taylor rule. my experience at the snb testifies the importance of the taylor rule. for us, the taylor rule derives its appeal from three features. the first is its simplicity in describing the behaviour of different central banks by estimating the policy reaction to deviations from the inflation target and to the output gap. the second is its quality as a benchmark in assessing the current stance of monetary policy with

philipp hildebrand : the virtues of flexible financial markets - a central banking perspective summary of a speech by mr philipp hildebrand, member of the governing board of the swiss national bank, at the cfa institute annual conference, zurich, 22 may 2006. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ) * * * summary rapid technological change and market liberalization have been the driving forces behind the remarkable evolution of global financial markets over the past three decades. the consequences of this development include a geographic rearrangement of global capital markets, a fast pace of product innovation and changes in the nature and composition of financial market participants. the benefits associated with today ’ s flexible financial markets are manifold. financial markets have become much more efficient in allocating capital. new products enable a better distribution of risks and the liquefaction of previously illiquid assets. they have also increased market transparency. as a result, modern financial markets facilitated innovation and likely enhanced economic growth. moreover, they have contributed to make economies more resilient to shocks. these extensive benefits notwithstanding, modern financial market also entails new risks. these risks tend to elicit calls for increasingly far - reaching regulation. while some regulation may indeed be required to guarantee the integrity of financial markets, the threshold for such regulation should be set high. regulation should only be considered if the objective is abundantly clear and if there is overwhelming evidence that market participants lack the incentives or the capability to adequately manage these risks themselves. rather than seeking regulation, market participants, central banks and regulators should focus on strengthening an already active dialogue with the aim of furthering our understanding of new types of risk associated with modern financial markets.