MONETARY TARGETS AS A POLICY RULE - LESSONS FROM THE SWISS EXPERIENCE

This paper provides a survey and analysis of Swiss monetary policy sin ce the shift to a floating exchange rate in 1973. Although the Swiss N ational Bank (SNB), by international comparison, managed to achieve a high degree of price stability, it could not prevent temporary bursts of inflation. I argue that the problem lay in an inappropriate SNB res ponse to such disturbances as unexpected exchange rate shocks, and sho w that in constructing optimum feedback rules, the SNB must take accou nt of the lags in the effects of monetary policy. I also discuss the S NB's current strategy resting on a medium-term growth target for the m onetary base.