The Swiss - with a grateful yawn - have steady money supply
Monetary policy has become a bore in Switzerland, says Kurt Schiltknecht, head of the economics department at the Swiss National Bank. ''When you have a 'monetarist' policy, it is not anymore exciting,'' he notes.
For the last three years, the Swiss central bank has set a target for annual growth in a monetary aggregate, known as the ''monetary base,'' of 3 percent. And each year it has met that target within about half a percentage point. This year, for example, Mr. Schiltknecht says, the monetary base (commercial bank reserves plus currency) has grown about 2.5 percent, instead of 3 percent.
As a result of this steady-growth or ''monetarist'' policy, Schiltknecht says , ''Monetary policy is not really a topic people are interested in - not even bankers and journalists. And that is a good thing.''
In the United States, numerous economists make a living following the monetary policy of the Federal Reserve System. The money markets wait anxiously each Thursday afternoon for the Fed to release its money supply numbers. Bond market prices jump up or down when market expectations for the money supply numbers prove to have been mistaken. If the numbers are too generous, analysts worry about inflation; if money growth is too limited, they fuss about the possibility of a recession.
When the Swiss National Bank publishes its balance sheet a few times a month - from which an economist can figure out changes in the monetary base - the financial community yawns.
''The money markets are only interested in these figures when you can exploit them,'' notes Schiltknecht, who got his doctorate in economics at the Wharton School, University of Pennsylvania. In other words, Swiss monetary policy has been sufficiently stable that interest rates remain around 5 percent and bond prices do not jump about with the release of monetary statistics in a way that lets a canny speculator make a profit.
More important, the stable monetary policy has given Switzerland relatively steady and noninflationary economic growth. Real gross national product (GNP) - the output of goods and services - has risen about 2.5 percent this year, and inflation is running around 3 percent. Switzerland weathered the last world recession rather well, with real GNP dropping from a 2.5 percent growth rate in 1981 to a 1 percent decline in 1982 and recovering to 1 percent growth last year.
None of these numbers are extreme. Moderation seems natural for Switzerland, with a population of 6.5 million, one of the highest living standards in the world, and little population growth. Overall, says Schiltknecht, ''the Swiss economy is doing better than the rest of Europe.'' He thinks the inflation rate is high at the moment, however, and hopes that if the dollar weakens, inflation will return to a ''trend'' of about 2.5 percent. West Germany has a slightly lower inflation rate.
Hans J. Mast, chief economist at Credit Suisse, one of the nation's three big commercial banks, also describes Swiss economic policy as ''very successful,'' producing low inflation, low interest rates, almost no unemployment, and balance-of-payment surpluses. ''Maybe it's due to control of the money supply - or sheer luck,'' he says.
With Switzerland being an open economy, perhaps its gravest threats arise from events abroad: world recession, oil crises, and such. Switzerland is fortunate in that its most important trading partner, West Germany, has also usually followed a classic, relatively stable monetary policy. That has helped keep the relationship between the Swiss franc and the West German mark fairly stable, at least in the last few years.
Monetarist economic theory holds that because business trends are so unpredictable, a steady, modest growth of the money supply is more likely to produce solid, noninflationary economic growth than the attempt by a central bank to counter the business cycle with variable monetary growth. To advocates of ''monetarism'' like Mr. Schiltknecht, the Federal Reserve System is foolish to try an activist monetary policy.
The Fed, however, has been praised lately for slowing down the extremely rapid growth of the economy in the first half of the year and keeping inflation at a fairly modest level - 4.2 percent in the 12 months before October.
Mr. Mast of Credit Suisse maintains that Swiss monetarism is also ''pragmatic ,'' and monetary policy would change if required by some dramatic economic change. Schiltknecht agrees: ''You can't solve all economic problems with monetary policy.'' But he figures the steady economic performance of Switzerland and Japan (also following a basically monetarist policy) is proof of the advantage of a reliable and modest monetary policy.