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SNB − an information vacuum

Tue, Feb 9 2010, 15:31 GMT
by Danske Research Team

Danske Bank A/S  |  View company's profile

As of 1 January 2010, Philipp Hildebrand replaced Jean-Pierre Roth as chairman of the governing board at the Swiss National Bank (SNB). Not a major event, given that Hildebrand has expressed no indications to alter how monetary policy is implemented by the SNB. However, there could be a significant change in the way the SNB communicates its monetary policy. Indeed, since the December monetary policy meeting, the SNB has been unusually quiet. In this note we analyse how central bank transparency affects the success at which central banks implement monetary policy, with an emphasis on the SNB.

Limited amount of news out of Zürich

Since December’s monetary policy meeting, the amount of news from the SNB has been limited and no speeches are scheduled before the next policy meeting in March. If this holds it will be an unusually quiet period for the SNB. A count at the SNB’s homepage reveals that during 2009 the three members of the governing board held 23 speeches on monetary policy – excluding speeches held on the days of a monetary policy decision. Furthermore, the members of the governing board were also frequently interviewed in Swiss and international financial newspapers. During January, however, there have been no official speeches and only two interviews given to the media. Going forward it will be interesting to see if this constitutes a new communication strategy by the SNB.

One of the least transparent central banks in the OECD

A recent OECD analysis1 shows that the SNB is one of the least transparent central banks in the OECD. It only holds scheduled monetary policy meetings once every quarter and in addition it is not very transparent on its economic analysis. This stands in contrast to the general movement among the world’s central banks over the past 20 years towards more transparency. Which according to theoretical and empirical evidence helps central banks to be more successful in achieving their policy goals2. More specifically, data reveals that central banks that have been good at communicating their policy have obtained a lower level of inflation, a lower degree of inflation volatility and a greater extent of predictability of monetary policy – a prerequisite for low financial market volatility. The SNB has during the past two decades, however, been favoured by a period of very low and stable inflation, which could reduce incentives for increasing transparency.

Implications of a policy change

If there has been a change in the communication strategy by the SNB, it could affect financial market volatility more than during “normal” policy regimes. That is, less communication could prove a dangerous strategy at a time when the SNB is employing all of its policy tools – i.e. interest rate setting, intervention on the currency market and asset purchases. Less information could spell increased price movements around times of important policy communication, such as monetary policy meetings and speeches.

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Published on  Tue, Feb 9 2010, 15:36 GMT