Most prominently, global interconnectedness implies large and swift transmission of shocks across countries. A seemingly localized supply shock, such as the tsunami in Japan or the floods in Thailand two years ago, created ripple effects in various parts of the world by disrupting the global supply chain of production. From the perspective of most Asian economies, the abrupt economic contraction in the US and the euro area during the financial crisis were examples of external demand shocks. While such “real spillovers” generated by supply or demand shocks can be quite damaging, the avenues for dealing with them are apparent and relatively uncontroversial. Fiscal automatic stabilizers should be allowed to work fully and monetary policy could be eased to cushion the impact so long as medium-term inflation expectations are contained. Calibrating the policy response to these shocks may not be straightforward, but they do not, in of themselves, pose challenges to the underlying framework of policy. On the contrary, “financial spillovers” associated with extraordinary monetary policy easing in advanced economies have prompted many central banks and academics to do some soul searching about the appropriate framework, not just for monetary policy, but also for regulatory and capital account policies that can best deal with these shocks. It has been around five years that the US federal funds rate has been kept at the zero lower bound, and this has been supplemented with multiple rounds of large-scale asset purchases.
To date, in order to implement its monetary policy, the SNB has allowed the three-month Swiss franc Libor to fluctuate within a range. Obviously, this element of its strategy will have to change. The SNB will announce the requisite changes in due course. Conclusion Ladies and Gentlemen, to conclude: We have seen that, ten years on from the crisis, central banks’ basic mission has not fundamentally changed. However, the environment in which they operate has evolved and continues to do so. For this reason, it is essential that the SNB has a precise understanding of the changes it faces, and adapts itself in response, in order to ensure the continued and optimal fulfilment of its mandate. To date, the SNB has been able to rely on a sound strategy and on the skills and state-of-theart technologies that allow it to remain agile in a constantly changing world. I am convinced that it will continue to do so in the future. Thank you for your attention. 7 Information on the working group, including updates on outstanding issues, is available at www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates. Page 9/9  Ten years after the crisis: evolving markets and the challenges for the SNB Andréa M. Maechler and Thomas Moser Member of the Governing Board / Alternate Member of the Governing Board Swiss National Bank Money Market Event Geneva, 8 November 2018  Sources: FSO, SNB.