Abstracting from the scope for other policies to boost demand, Williams puts the cost to the United States of this constraint on policy rates at around $ trillion of foregone output over 2009–2012. 12  BIS Review 111/2010  Some might be tempted, therefore, to argue that a modest increase in target inflation rates from the current norm of around 2 per cent is called for. There are, however, potential costs associated with accepting higher average inflation. First, while the costs from perfectly anticipated inflation might seem likely to be modest, the academic literature suggests that may not be the case. Moreover, there is a well documented empirical relationship between the level and the volatility of inflation, and unexpected movements in inflation are more likely to generate resource misallocation and the capricious redistribution of income and wealth. There is, therefore, a risk that even a modest increase in the target of a few percentage points could lead to a corresponding increase in inflation volatility and associated welfare losses. Second, unlike in most macroeconomic models, expectations formation is not costless. A bonus from low and stable inflation is that economic agents do not have to expend much effort in predicting inflation; the simple heuristic that inflation is a constant – or even that prices are stable – will suffice (Brazier et al., 2008). That is particularly valuable for households, who are likely to be relatively less informed.
Furthermore, after rising in the second half of 2018, credit default swap premia are now back at roughly the same level as in mid-2018. In the area of resolution, the Swiss big banks have improved their gone-concern lossabsorbing capacity since last year’s Financial Stability Report. Credit Suisse and UBS already meet all look-through requirements on a consolidated basis. Page 1/3  Berne, 13 June 2019 Fritz Zurbrügg  News conference  In addition to those at group level, the Federal Council has drawn up requirements on big banks’ loss-absorbing capacity at the level of individual group entities, and in early April initiated a consultation on a corresponding amendment to the Capital Adequacy Ordinance. These requirements are intended to ensure that not only the group as a whole, but also material group entities have sufficient loss-absorbing capital in the event of a crisis. The SNB supports the proposed amendments to the Capital Adequacy Ordinance. Work is also underway with regard to liquidity in a crisis, known as ‘funding in resolution’. It is aimed at ensuring that the big banks have sufficient liquidity during preparations for and in the phase immediately after resolution. For this purpose, FINMA is drawing up resolution funding plans in line with international standards. In cooperation with the SNB and the two banks concerned, it is currently assessing the big banks’ liquidity needs under possible crisis scenarios.