But I will also assert that, when major disruptions occur, central banks cannot always keep inflation and growth stable within a targeted range. This, in turn, is not a new insight per se, in that it adheres to the central banking consensus that monetary policy should be geared to the medium term, and that, depending on the environment, certain short-term fluctuations in output and inflation are unavoidable. Allow me to begin by providing a definition of what is meant by an independent monetary policy. A country with free movement of capital has two means of achieving monetary policy goals like price stability. First, it can peg the exchange rate of its currency to a foreign currency, thereby adopting the other country’s monetary policy. If the two economies move in parallel and the monetary policy of the other country is sufficiently stability-oriented, price stability can be imported by this means. Or, second, a central bank can pursue a monetary policy that is BIS central bankers’ speeches  1  explicitly tailored to suit the specific needs of that country. The monetary policy trilemma is that, given free capital movement, such a tailored, independent monetary policy is only possible with a floating exchange rate. Of course, as a small open economy pursuing an independent monetary policy, Switzerland is also exposed to global influences, and particularly to those from within Europe. First, trade relations are of central importance; fluctuations in consumer demand within the euro area are reflected in the exports of neighbouring countries, and influence their economies.
8  The table shows values for November 2014, since the SNB’s announcement in December of a rate of –0.25% on sight deposits with effect from January 2015 immediately impacted market interest rates. 9  By January 2016, the situation had eased enough for Danmarks Nationalbank to raise the interest rate to –0.65%. BIS central bankers’ speeches  7  By discontinuing the minimum exchange rate, the SNB regained some of its ability to conduct monetary policy. The new monetary policy stance is beginning to have an impact. Since the minimum exchange rate was discontinued, there have been periods of great uncertainty on the financial markets in connection with Greece, but also with China and other emerging economies. This would normally have caused the Swiss franc to appreciate, whereas the franc has actually weakened slightly over the last 12 months. Nonetheless, the Swiss franc remains considerably overvalued against the euro in real terms. I draw the following conclusion for the third phase: unconventional monetary policy measures are now widespread in Europe and have given central banks slightly more room for manoeuvre. The Riksbank and the ECB are operating quantitative easing programmes. The central banks of the Czech Republic, Denmark, Sweden and Switzerland are prepared to intervene in the foreign exchange market as necessary. And finally, Danmarks Nationalbank, the ECB, the Riksbank and the SNB have all introduced negative interest rates.10 What kind of impact have negative rates had from a monetary policy perspective?