Thomas Jordan: The Swiss National Bank’s monetary policy after the discontinuation of the minimum exchange rate Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 107th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 24 April 2015. *  *  *  Mr President of the Bank Council Dear Shareholders Dear Guests, dear School Students Since 15 January, the Swiss National Bank (SNB) has once again been coming to terms with a whole new set of challenges. On that day, the Governing Board decided to discontinue the minimum exchange rate because the international environment for the SNB’s monetary policy had changed dramatically. The end of the minimum exchange rate of CHF 1.20 against the euro has far-reaching implications for our economy. It is therefore understandable that our decision triggered strong reactions. Yet had we continued to maintain the minimum exchange rate for a certain period, the consequences for our country would have been much more severe. In my talk today, I would like to explain to you in detail our reasons for discontinuing the minimum exchange rate. The SNB attaches great importance to clarifying its monetary policy decisions. This is, on the one hand, an important part of our statutory duty of accountability to parliament. On the other, it is a prime concern of ours that the general public and, in particular, you, our shareholders, should understand our monetary policy.
Professor John Taylor, currently a Treasury under-secretary in the Bush Administration, has formulated a simple rule for interest setting that has come to be named after him and been widely recognised. With the Taylor rule, the instrumental rate varies around an equilibrium rate with a correction for actual inflation’s relationship to targeted inflation and resource utilisation (GDP growth’s divergence from an estimated trend). Given that the economy is in equilibrium, inflation is 2 per cent and the output gap is zero, in Taylor’s version of the rule for the United States the nominal instrumental rate is 4 per cent. Divergences in resource utilisation or inflation prompt the central bank to raise or lower the instrumental rate, depending on the size and direction of the deviations. The Taylor rule is popular for several reasons; besides being relatively simple, it seems to give a relatively good account of monetary policy in many different countries. In that way it has contributed to a better understanding of how monetary policy is conducted. To date, however, no central bank has explicitly stated that it has chosen to base its monetary policy on the type of rule John Taylor advocates. BIS Review 24/2002  3  One result that a money supply target and the Taylor rule have in common is that monetary policy’s responses to the various shocks to which an economy is constantly being exposed are systematic and predictable.