A tighter monetary policy designed to combat a flare-up of inflation tends to cause business activity to slow down. Such a slowdown may be necessary, for instance to reduce the likelihood of overheating, but it has painful side effects on various sectors of the economy. In pursuing price stability, we must be careful not to lose sight of the costs, and must use tact and discretion. The obligation to take account of the economy is now inscribed in law, but in reality this is nothing new: we have always made the state of economic activity in Switzerland one of our prime concerns. Our massive interest rate cuts in recent years while the economy was in the doldrums is ample proof of this stance. BIS Review 25/2004  3  Having to take account of the economy also means that we cannot be dogmatic in our pursuit of price stability, which must be seen as a medium-term goal. As a small, open economy, we are constantly exposed to external shocks. As our inflation rate tends to be more volatile than that of large countries or economic zones, temporary movements beyond the bounds of price stability cannot be ruled out. Trying to keep too tight a lid on prices would have adverse effects on the economy and would be counterproductive. It is just as obvious, though, that monetary policy has its limits.
Page 5/13  Chart 4 shows the development of these surpluses and deficits as a percentage of global GDP over the past 20 years. Positive values represent a current account surplus; negative values a current account deficit. I would like to highlight trends in a few selected economies. Looking first at the countries which have a current account deficit, we see that the US is among them. It is represented by the blue section of the bar. The pink section denotes all the other current account deficits in the world. In 2016, this group comprised 106 countries. Let’s turn now to the countries that have a current account surplus. These are China, shown in red, Germany in orange, and Japan in green. Switzerland is depicted with a very small, dark blue bar. All other current account surpluses are aggregated in the light blue bar. This bar comprised 42 countries in 2016. The chart illustrates three facts. First, due to the small size of our country, the Swiss surplus is relatively insignificant in the global picture of current account balances. Switzerland’s contribution to global current account balances is small and did not play a role in the growth of global current account balances before the financial crisis. Second, the size and evolution of global current account balances is defined by four major economies. China, Germany, Japan and the US today make up almost half of global current account balances. The remaining 150 or so countries together make up the other half.