Monetary targets as a policy rule: Lessons from the Swiss experience

This paper provides a survey and analysis of Swiss monetary policy since the shift to a floating exchange rate in 1973. Although the Swiss National Bank (SNB), by international comparison, managed to achieve a high degree of price stability, it could not prevent temporary bursts of inflation. I argue that the problem lay in an inappropriate SNB response to such disturbances as unexpected exchange rate shocks, and show that in constructing optimum feedback rules, the SNB must take account of the lags in the effects of monetary policy. I also discuss the SNB's current strategy resting on a medium-term growth target for the monetary base.