This insight has tremendous significance for Switzerland where, as I have attempted to show, much of the non-tradable sector of our economy remains tied up in a structural straight jacket. Eliminating this straight jacket or at least unbuttoning it would have wide-ranging positive effects on the Swiss economy. If our legislative authorities rise to that challenge, they are likely to replicate the competitionboosting effect that the forces of globalization have exerted on the external sector in the domestically oriented sectors of our economy. Higher productivity growth rates would ultimately lead to higher growth rates and thus reverse a worrying trend of declining relative growth dynamics in Switzerland in comparison with other OECD countries.11 Such productivity driven growth dynamics should lead to lower prices across a sizeable part of our economy. Obviously, this statement needs to be qualified. he Swiss economy will always remain vulnerable to developments abroad. A significant demand or supply shock to the global economy could reverse the beneficial impact on domestic prices of further domestic liberalization. For example, widespread protectionist measures rolling back the achievements of globalization or widespread geopolitical conflict and uncertainty would certainly threaten the broad achievements with regard to price stability. Nonetheless, breaking up the rigidities impeding competition in the domestically oriented sectors of our economy has every chance of rendering monetary policy not only more  10  Alan Blinder (1998): “Central Banking in Theory and Practice”. Cambridge: MIT Press.
As the time bomb of demographics continues to tick, it will become increasingly obvious that this process is not a luxury our society can contemplate. It is a necessity! 5. Monetary Implications of Globalization  Let me now return to monetary policy. I have attempted to sketch out how after the “Great Inflation of the 1970s”, global financial and economic integration boosted competition, raised productivity growth rates and ultimately helped bring about an extraordinary reduction in global inflation and along with it a reduction in output volatility. As I have mentioned earlier, there is no doubt that good central banking itself has made an important contribution. But ultimately central banks have also benefited from the process. With inflation receding, many central banks have been able to focus increasingly on what typically constitutes a subordinate element of their legislative mandate: stabilization of output. In other words, a structural decline in the rate of inflation has increased the margins of manoeuvre for central banks. This does not alter the fact that central banks have no ability to fine-tune the real economy. Moreover, an important body of academic literature suggests that monetary policy has also become more effective as markets shed regulatory impediments.10 Monetary policy is therefore not only one of the forces behind the dramatic decline of inflation since the early 1980s. Perhaps more importantly, it has been one of the main beneficiaries of the globalization process.