Philipp M Hildebrand: Monetary policy in a global context Speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Swiss-American Chamber of Commerce, Zurich, 8 October 2003. *  *  *  It is a special privilege to be able to give my first formal address as a central banker before the distinguished audience of the Swiss-American chamber of commerce. I have always been very fond of the Swiss-American friendship. It has been an integral part of my family’s life for several decades. More importantly, I am convinced it is an essential ingredient to the long-term vitality of the Swiss economy. Like any friendship, it has had to endure difficult moments. The vibrancy of your association is testimony to the fact that the cultural affinities and common interests between our two countries provide a reliable foundation for extensive and mutually beneficial economic relations. Let us strive to make this foundation as solid as the public service record of the Geneva-born Albert Gallatin, whom Thomas Jefferson appointed as the fourth Secretary of the U.S. Treasury in 1801. To this day, Gallatin remains not only the longest serving Treasury Secretary in the history of the United States but the only Swiss-American to have occupied that most prestigious position in the then newly established capital in Washington D.C. My focus today will be on the long period of global disinflation following Paul Volcker’s paradigmatic shift of monetary policy in the United States.
The increasing scepticism of the 1960s and the 1970s about monetary policy’s ability to fight inflation has given way to confidence that prudent, consistent and forward-looking monetary policy can contain the destructive forces of inflation. Global inflation figures suggest that such confidence is largely justified. In the industrialized world, inflation declined from 12% in 1980 to 1.4% in 2002.2 In the developing world, the decline of inflation has been even more remarkable with yearly rates tumbling from an average of 31 percent in the early 1980s to currently under 6%.3 Along with a significant decline in inflation, volatility of economic growth has fallen everywhere. Both in the U.S. as well as in Germany, the volatility of real GDP, averaged over four quarters, was about 30 percent less during the 1984 to 2002 period than it was between 1960 and 1983.4 The evidence therefore confirms that monetary policy efforts to achieve and maintain price stability promote stability in output and thereby help create economic conditions which are ultimately conducive to employment creation. (see annex for table 1)  2. New Challenges for Monetary Policy  Not unlike successful athletes, central bankers must never be complacent in victory. It would therefore be at best inappropriate and at worst irresponsible for the global central banking community to consider its job done. There will be no “End of Central Banking”. For one thing, there is no guarantee that the elimination of inflation throughout much of the world economy is a permanent achievement.