Skip to main content

A Two-Pillar Phillips Curve for Switzerland


Monetary aggregates have historically been important in Swiss monetary policy. The Swiss National Bank used money growth targets until 1999. The new policy framework introduced in 2000 focuses on an inflation forecast that relies on money growth as an indicator. How useful is money growth for explaining inflation in Switzerland? Using data spanning 1979 to 2007, we estimate a Phillips curve model that incorporates a measure of “trend” money growth and find that it impacts on inflation if one takes the downward shift in nominal interest rates over the sample into account. Including money growth reduces the in-sample forecasting errors by 15%.


  • Assenmacher-Wesche, Katrin and Stefan Gerlach (2006a), “Money Growth, Output Gaps and Inflation at Low and High Frequency: Spectral Estimates for Switzerland”, SNB Working Paper, 2006-5.

  • Assenmacher-Wesche, Katrin and Stefan Gerlach (2006b), “Interpreting Euro Area Inflation at High and Low Frequencies”, BIS Working Paper, 195.

  • Assenmacher-Wesche, Katrin and M. Hashem Pesaran (2005), “A VARX* Model of the Swiss Economy”, mimeo.

  • Baltensperger, Ernst, Thomas J. Jordan and Marcel R. Savioz (2001), “The Demand for M3 and Inflation Forecasts: An Empirical Analysis for Switzerland”, Weltwirtschaftliches Archiv, 137(2), pp. 244–272.

    Article  Google Scholar 

  • Begg, Claus, Fabio Canova, Paul De Grauwe, Antonio Fatas and Philip R. Lane (2002), Surviving the Slowdown: Monitoring the European Central Bank 4, London.

  • Bruggeman, Annick, Gonzalo Camba-Mendez, Bjoern Fischer and Joao Sousa (2005), “Structural Filters for Monetary Analysis: The Inflationary Movements of Money in the Euro Area”, ECB Working Paper, 470.

  • Cogley, Timothy (2002), “A Simple Adaptive Measure of Core Inflation”, Journal of Money, Credit, and Banking, 34, pp. 94–113.

    Article  Google Scholar 

  • De Grauwe, Paul and Magdalena Polan (2005), “Is Inflation Always and Everywhere a Monetary Phenomenon?”, Scandinavian Journal of Economics, 107(2), pp. 239–259.

    Article  Google Scholar 

  • ECB (1998a), “A Stability-Oriented Monetary Policy Strategy for the ESCB”, press release, October 13.

  • ECB (1998b), “The Quantitative Reference Value for Monetary Growth”, press release, December 1.

  • ECB (1999), “The Stability-Oriented Monetary Policy Strategy of the Eurosystem”, Monthly Bulletin, January, pp. 39–50.

  • ECB (2003), “The Outcome of the ECB’s Evaluations of its Monetary Policy Strategy”, Monthly Bulletin, June, pp. 79–92.

  • Fischer, Andreas M. and Michel Peytrignet (1990), “Are Larger Monetary Aggregates Interesting? Some Exploratory Evidence for Switzerland Using Feedback Models”, Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 126, pp. 505–520.

    Google Scholar 

  • Gali, Jordi and Mark Gertler (1999), “Inflation Dynamics: A Structural Econometric Approach”, Journal of Monetary Economics, 44(2), pp. 195–222.

    Article  Google Scholar 

  • Gali, Jordi, Mark Gertler and J. David Lopez-Salido (2001), “European Inflation Dynamics”, European Economic Review, 45(7), pp. 1237–1270.

    Article  Google Scholar 

  • Gerlach, Stefan (2003), “The ECB’s Two Pillars”, CEPR Discussion Paper, 3689.

  • Gerlach, Stefan (2004), “The Two Pillars of the ECB”, Economic Policy, 40, pp. 389–439.

    Google Scholar 

  • Gerlach-Kristen, Petra (2006), “A Two-Pillar Phillips Curve for Switzerland”, SNB Working Paper, 2006-9.

  • Greiber, Claus and Manfred J. M. Neumann (2004), “Inflation and Core Money Growth in the Euro Area”, Economic Research Centre of the Deutsche Bundesbank Discussion Paper, 36.

  • Harvey, Andrew C. (1989), Forecasting, Structural Time Series Models and the Kalman Filter, Cambridge.

  • Hildebrand, Philipp (2004), „Vom Monetarismus zur Inflationsprognose: Dreissig Jahre Schweizerische Geldpolitik“, Lecture given at the University of Berne, 23 November, available at

  • Issing, Otmar (2005), “The Monetary Pillar of the ECB”, speech available at

  • Jaeger, Albert (2003), “The ECB’s Money Pillar: An Assessment”, IMF Working Paper, 03/82.

  • Jordan, Thomas J., Peter Kugler, Carlos Lenz and Marcel R. Savioz (2002), “Inflationsprognosen mit vektorautoregressiven Modellen”, Swiss National Bank Quarterly Bulletin, 20(1).

  • Jordan, Thomas J. and Michel Peytrignet (2001), „Die Inflationsprognose der Schweizerischen Nationalbank“, Swiss National Bank Quarterly Bulletin, 19(2).

  • Jordan, Thomas J., Michel Peytrignet and Georg Rich (2001), “The Role of M3 in the Policy Analysis of the Swiss National Bank”, in: Hans-Joachim Klöckers and Caroline Willeke, Monetary Analysis: Tools and Applications, Frankfurt, pp. 47–62.

  • Jordan, Thomas J. and Marcel R. Savioz (2003), „Sind Kombinationen von Prognosen aus VAR-Modellen sinnvoll? Eine empirische Analyse mit Inflationsprognosen für die Schweiz“, Swiss National Bank Quarterly Bulletin, 21(4).

  • Kugler, Peter and Thomas J. Jordan (2004), “Structural Vector Autoregressions and the Analysis of Monetary Policy Interventions: The Swiss Case”, Schweizerische Zeitschrift für Volkswirtschaft und Statistik, 140(1), pp. 67–87.

    Google Scholar 

  • Laubach, Thomas and Adam Posen (1997), “Some Comparative Evidence on the Effectiveness of Inflation Targeting”, Federal Reserve Bank of New York Research Paper, 9714.

  • Luescher, Barbara (1999), „Asymmetrie im Output-Inflations-Zusammenhang: Schätzergebnisse und Implikationen“, in: Ernst Baltensperger, Transmissionsmechanismen der Geldpolitik, Berlin.

  • Meyer, Hans (1999), “Introductory Remarks” to end-of-year media news conference, 10 December, Zurich, available at

  • Nelson, Edward (2003), “The Future of Monetary Aggregates in Monetary Policy Analysis”, Journal of Monetary Economics, 50, pp. 1029–1059.

    Article  Google Scholar 

  • Neumann, Manfred J. M. (2003), “The European Central Bank’s First Pillar Reassessed”, mimeo.

  • Nicoletti-Altimari, Sergio (2001), “Does Money Lead Inflation in the Euro Area?”, ECB Working Paper, 63.

  • Peytrignet, Michel (1999), “Swiss Monetary Policy under a Flexible Exchange Rate Regime: Monetary Targets in Practice”, in: Bank of Canada, Money, Monetary Policy, and Transmission Mechanisms, Ottawa, pp. 193–219.

  • Peytrignet, Michel and Christof Stahel (1998), “Stability of Money Demand in Switzerland: A Comparison of the M2 and M3 Cases”, Empirical Economics, 23(3), pp. 437–454.

    Article  Google Scholar 

  • Reynard, Samuel (2006), “Money and the Great Disinflation”, SNB Working Paper, 2006-7.

  • Rich, Georg (2003), “Swiss Monetary Targeting 1974–1996: The Role of Internal Policy Analysis”, European Central Bank Working Paper, 236.

  • SNB (1999), “Monetary Policy Decisions of the Swiss National Bank for 2000”, Swiss National Bank Quarterly Bulletin, 17(4).

  • Stalder, Peter (2001), „Ein ökonometrisches Makromodell für die Schweiz“, Swiss National Bank Quarterly Bulletin, 19(2).

  • Wyplosz, Charles (2001), “Do We Know How Low Inflation Should Be?”, CEPR Working Paper, 2722.

  • Zanetti, Attilio (1998), „Strukturelle Arbeitslosigkeit und Inflation“, Swiss National Bank Quarterly Bulletin, 16(2).

Download references

Author information

Authors and Affiliations


Corresponding author

Correspondence to Petra Gerlach-Kristen.

Additional information

The views expressed in this paper are the author’s and do not necessarily reflect those of the Swiss National Bank. I thank the anonymous referee, Katrin Assenmacher-Wesche, Andreas Fischer, Stefan Gerlach, Michel Peytrignet, Samuel Reynard, Marcel Savioz, Peter Stalder, Andreas Worms and seminar participants at the 2006 meeting of the Swiss Society of Economics and Statistics in Lugano, at the Bundesbank-OeNB-SNB workshop 2006 in Eltville and at the SNB for helpful comments.

Rights and permissions

Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Reprints and permissions

About this article

Cite this article

Gerlach-Kristen, P. A Two-Pillar Phillips Curve for Switzerland. Swiss J Economics Statistics 143, 425–448 (2007).

Download citation

  • Published:

  • Issue Date:

  • DOI: