Our monetary policy concept, which we adopted in 2000, defines price stability, and I quote again, as "a rise in the national consumer price index of less than 2% per annum". Let me draw your attention to three subtleties here. First, our mandate is to ensure price stability, but we do tolerate some inflation! For both the ECB and the SNB, prices should slightly increase or potentially stagnate, but not decrease over time. Rising prices may not correspond to your idea of price stability, and you may think that even low inflation should be avoided since inflation causes inefficiency. The reason why central bankers think that price stability is achieved even when there is in fact some inflation, is that the better quality of new products and the improvement of existing ones can justify non-inflationary price adjustments. A second detail is that we do not name one figure as the desirable inflation rate. Rather, we say that we think of price stability as inflation somewhere between 0 and 2%. The reason for this is that uncertainties about the extent of product innovations make it difficult to define a certain inflation rate as optimal. Moreover, given the importance of trade in our GDP, our inflation rate may react rapidly to changes in foreign prices, which should not necessarily trigger a monetary policy reaction. A target band gives us more flexibility in the implementation of monetary policy.
Looking at our development over the last ten years, I do believe that price stability, due to monetary independence and flexible exchange rates, has been beneficial to the Swiss economy. It has maintained a low interest rate environment which has facilitated the private sector's adjustment to the rapid changes of the world economy. And what about Israel? I think that the arguments in favour of Switzerland's monetary independence apply even more to this country. While we at the SNB concentrate primarily on domestic developments and trends in the euro area, the Bank of Israel also has to take into account economic conditions in the US. Thus, there are three major sources of shocks that Israeli monetary policy has to respond to in order to achieve the goal of price stability. BIS Review 46/2006  7  Despite difficult circumstances, Israel was able to stabilise its monetary framework in the 1990s. The Bank of Israel now operates with an inflation target and will soon benefit from a new law that will modernise its decision-making process and strengthen its autonomy. All the necessary ingredients are now in place for the implementation of a successful independent policy in this country, as was once also the case in Switzerland. May I wish Stanley Fisher and his colleagues all the best in this endeavour. 8  BIS Review 46/2006