The recent “tech-stock bubble” provides us with an illustration of such a difficulty: while one was witnessing the “irrational exuberance” in 1996, the surge in capital spending associated with the development of new technologies resulted in a faster productivity growth, which in turn boosted equity prices. At that time, uncertainties about fundamentals (was there an American miracle?) made difficult a proper assessment of asset valuations, although the large movements in asset prices where a concern for central banks. However, when expectations reverse, for example due to the reassessment of expected profitability in the economy, and consequently asset prices decrease, the point is to determine whether the attitude of the central bank ought to be different in order to preserve monetary and financial stability. That is, some could argue that the central bank’s response should be asymmetric. In the booming phase, as long as price stability is not endangered, central banks do not react to the rise in asset prices. Conversely, in the recession phase or when a bubble bursts, central banks could consider reacting if they deem that monetary and financial stability is endangered. What could then restrain them from doing it?
Jean-Pierre Roth: The Swiss economy and financial centre – successes and new challenges Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Handelskammer Schweiz-Österreich und Liechtenstein (Foreign Trade Chamber for Switzerland-Austria and Liechtenstein), Vienna, 25 February 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Mid-2003 saw the start of a remarkable, broad-based economic upswing in Switzerland which is still underway, even if business cycle uncertainty has increased in the recent period. A number of factors indicate that the long-term growth outlook, too, has improved for Switzerland. These factors include the increasing globalisation of our economy and the opening up of the labour market to the EU. The Swiss economy is participating in globalisation through increased direct investment as well as growing foreign trade. At the same time, there is more competition on the domestic goods market, although a fair bit still remains to be done in this area to complement the opening up of the labour market to the EU. Globalisation and market opening present companies and economic policymakers with challenges that become particularly acute when setbacks occur – as in the case of the current international financial market turbulence.