Reference wage values, social preferences, jobs’ characteristics, skills’ endowments and even Central Banks’ targets, they all change over time – hence, the impact of cumulative wage gaps on inflation cannot be the same in different time periods. In fact, even Phillips (1958) mentioned that he ignored years in which import prices rise rapidly enough to initiate a wage-price spiral. He stated that his hypothesis that the rate of change of money wage rates can be explained by the level of unemployment is supported except in or immediately after such years. In doing that, he effectively acknowledged the non-stationarity of his curve. He referred to those years as events that occur very rarely except as a result of a war. Our approach embraces these events, except that in modern times it is not war that makes the difference, but recessions; and recessions happen more often than wars. We try to explain what happens during and after recessions – which is exactly what is omitted by the original Phillips curve. Wages, as the most important source of income for most households around the globe, stand at the basis of any consumption theory. The main problem with the prevailing consumption theories (Keynes’ consumption function (1936), Modigliani’s life-cycle hypothesis (1966) and 2  Friedman’s permanent income hypothesis (1957)) is their long-term approach. This puts them at odds with our rather short and medium-term perspective on inflation, especially in times of crisis.
The new National Bank was expected to gradually take over the activities of the former noteissuing institutions and to bring some welcome order to the payment system. At the time, the value of the Swiss franc was defined in gold and silver, the precious metal content of the coins was fixed accordingly and banknotes could be exchanged for gold. Nowadays, the SNB’s responsibility in matters of monetary stability is uncontested. In fact, it is explicitly mandated by law to preserve price stability while taking economic developments into account. Moreover, economic theory stresses the special responsibility of central banks in this area. The goals, methods and instruments of monetary policy have thus undergone profound changes. Nevertheless, the principles that have guided our activity over the past century have been remarkably enduring, and this is exemplified by the history of the National Bank. Pursuit of stability From the outset, the National Bank recognised that its role as the national note-issuing institution would extend far beyond the harmonisation of payment systems. The first steps were difficult. During the First World War, the SNB actively participated in financing military expenditures through its loans. This undisciplined lending policy pushed up inflation, thereby contributing to the social unrest of 1918. This sparked a broad debate on the SNB’s responsibility for the massive price rise. These events, along with the subsequent tragedy of German hyperinflation, left a strong mark on the National Bank. It must have been at that time that the SNB fully realised the complexity of its task.