It is making a promise about the future, particularly about future interest rates.”[17] And despite the intervening (and frequently re-iterated) point that our statements about future policy were “an expectation, not a promise”, a recent newspaper comment, published only a couple of months ago, referred to the “many promises [made by the MPC] to raise interest rates”. There may be several reasons for this. One must be the very fact that there are these two distinct forms of communication – one much closer to a “promise” than the other – yet economists use word the “guidance” for both, distinguishing them only with the (slightly arcane) classical descriptors “Delphic” and “Odyssean”. This kind of jargon can obscure more than it clarifies and one can quite understand why people might muddle them up[18]. More generally, it’s possible that central banks probably don’t help themselves with language which, while it may seem clear to people whose job it is to think about these things, is unclear or ambiguous to others. To the economist author the meaning of a phrase “we expect the appropriate level of interest rates to be X” may be “X is the arithmetic mean of a conditional  distribution for interest rates”. To others it may come across simply as “interest rates will be X”. In hindsight, the logical structure of the MPC’s 2013 guidance linking policy to the rate of unemployment – “if not p then not q” – may well have been too convoluted to be readily understood.
Most countries are still in the expansionary phase of the financial cycle, and a real test in the form of a financial crisis has –  3 4 5  Cf. https://www.finma.ch/en/documentation/self-regulation/ (consulted on 21 March 2022). Cf. https://www.snb.ch/en/mmr/reference/pre_20130213/source/pre_20130213.en.pdf (consulted on 21 March 2022). Cf. BCBS (2019), Guiding principles for the operationalisation of a sectoral countercyclical capital buffer. fortunately – not yet occurred. It is therefore essential that we update our assessment as we gain more experience, and as more and better data become available. Containing the build-up of vulnerabilities  Let me start with an assessment of the instruments that aim to contain the build-up of vulnerabilities. International empirical evidence available so far shows that borrower-based instruments such as caps on LTV and LTI ratios have helped to slow down mortgage lending and real estate price growth. 6 This has contributed to dampening the build-up of vulnerabilities, without being able to prevent them completely. Research also clearly highlights that macroprudential policymakers need to be forward looking, given that there are long lags between policy announcements and policy effects. A similar conclusion holds also for Switzerland. Unlike many other countries, Switzerland had not seen a housing boom before the GFC, and accordingly no bust thereafter. Instead, residential real estate prices have increased moderately but very persistently since then, prompting responses by macroprudential authorities.