If fiscal policy is no longer able to act, there is a danger that politicians, economic agents and the public will expect monetary policy to come up with a solution for every problem. In Switzerland, where good rules and a strong culture of stability exist, there is currently no tension. But even if our country is in a relatively good position, this is no reason to rest upon our laurels. Stability-oriented fiscal and monetary policies must be constantly maintained, to ensure that they are sufficiently robust when the next challenge presents itself. One of the greatest challenges for fiscal policy is demographic changes, which will place a heavy burden on public finances in the future. Calculations show clearly that, if policy is not changed, age-related costs will rise sharply. It will not be possible to solve these problems using only fiscal rules such as the debt brake. Profound structural reforms to social security arrangements are needed. Central banks, too, face major challenges. In the last few years, central banks across the world have broken new ground. They have cut interest rates practically to zero, supplied the financial system with generous amounts of liquidity and introduced unconventional monetary policy measures. These measures carry a number of risks, of which inflation is the most frequently cited. Allow me to conclude my presentation with a few words on that subject. 16  Cf. Jordan (2012b). BIS central bankers’ speeches  7  There is no sign of inflation for the short or medium term.
In the fiscal policy domain, the elements of a good rule are: It is clear and easy to understand; it is binding, i.e. has a basis in law – ideally at the constitutional level; and it is equipped with a specific sanctioning mechanism. Finally, it must make provision for exceptions, and these should be clearly defined. In the monetary policy domain, too, there are certain requirements regarding what makes a good rule. First, it must set out how the central bank should use its policy tools to achieve the goal of price stability. It defines criteria according to which monetary policy measures are taken. For many central banks, inflation forecasts play an important role. On the one hand, they serve as the main indicator for the interest rate decision. On the other, they are an important communication tool. A good rule creates a certain degree of transparency vis-à-vis the public, and makes monetary policy more predictable. It provides an anchor for inflation expectations and helps to improve the credibility of monetary policy. Second, we need a culture of stability which is well anchored in the minds of both politicians and the general public – part of the national mentality (cf. chart 6). Economic literature has repeatedly demonstrated that certain political structures and a culture of stability are mutually reinforcing. 7 For fiscal policy, these structures can be, for example, fiscal federalism (tax competition), the subsidiarity principle, direct democracy structures and political continuity (e.g. the concordance principle).