Indeed, already 20 years ago Staiger, Stock and Watson 9 pointed out that the most striking feature of NAIRU-based inflation estimates is their lack of precision, not to mention model uncertainty as evidenced by the righthand chart on slide 3. So what, then, is causing the sluggish performance of inflation? Here I want to argue that there are more subtle forms of hysteresis in the economy that are altering how we typically understand labour market slack. These are the scratches rather than the scars. 3/9  BIS central bankers' speeches  A different perspective on labour market slack One of the features of the recent employment recovery is that many new jobs have been of a lower “quality” compared with those seen before the crisis. While employment ratios have rebounded strongly, employment of full-time workers with permanent contracts has in fact declined. The latest EU Labour Force Survey (LFS) data suggest that “core” employment – that is, full-time positions on open-ended permanent contracts – now account for just over two thirds of all employees. You can see on slide 4 that this is the lowest share since the survey was first conducted. The LFS also suggests that of the net employment created since the crisis, around a third has been for workers on temporary contracts, and around a quarter part-time. Of course, a fraction of those seeking part-time employment do so as a way to balance work and other commitments. But, for others, the choice for part-time work is involuntary.
Consequently, banks which sold euros for less than CHF 1.20 did not receive the best market price and had – relatively speaking – to accept losses. Since there is no compulsion to make business transactions at the best prices, such anomalies cannot always be excluded. However, they can only be maintained for a very short period. How is the SNB organised in operational terms for implementing the minimum exchange rate? Since the introduction of the minimum exchange rate, the SNB has monitored the foreign exchange market from market opening in Asia on Sunday evening to market closing in New York on Friday evening without any interruption. The same applies to holidays. The interbank market, which is the market of relevance for the SNB, includes its counterparties. The SNB accepts well over 100 banks with more than 700 trading desks as counterparties. Thanks to this network of contacts, the global foreign exchange market is almost completely covered. On the part of the SNB, the trading limits amount to some hundreds of billions of  BIS central bankers’ speeches  1  euros a day. These limits can be flexibly adjusted by the SNB, should this be necessary. Via electronic trading systems, the banks have access at all times to the offers. The SNB’s strategy for implementing the minimum exchange rate has proved effective – including in the last few days. On the relevant interbank market, CHF 1.20 per euro qualifies as the lowest exchange rate. Consequently, the minimum exchange rate applied at all times.