Monetary policy: Application - Scenario mode

Monetary policy: Application

Introduction to Mopos – Scenario mode

Economics for everyone Iconomix – the Swiss National Bank’s educational programme

Scenario mode

Mopos

Mopos is a monetary policy simulation game:

• You act as a governor of a central bank and conduct a country’s monetary policy.

• You gain insight into the considerations behind a central bank’s monetary policy decisions.

• You learn about the possibilities and limitations of monetary policy.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

Monetary policy tasks

A modern central bank pursues two goals:

• Price stability as the primary objective
• Balanced economic development as an important secondary objective

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

Monetary policy instrument

The central bank uses one instrument to pursue both goals − its key interest rate.

• Raising key interest rate ⇒ lower inflation and economic slowdown
• Lowering key interest rate ⇒ higher inflation and economic upturn

Please note: It is important to distinguish between conventional monetary policy, which involves steering the key interest rate, and unconventional measures, such as foreign exchange market interventions.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

Monetary policy decision-making process

The central bank board meets regularly at monetary policy assessments to its make interest rate decision.

• Phase 1: Analyse the current situation by looking at developments in inflation and economic activity.
• Phase 2: Prepare a forecast on the future development of inflation and economic activity.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

Monetary policy challenges

A number of factors complicate the conduct of monetary policy in Mopos:

• It has one instrument (key interest rate) for two goals (price stability and balanced economic development).
• Inflation does not react immediately to interest rate adjustments.

• In addition to monetary policy, unforeseeable events (also known as disruptions or shocks) influence the economy.

• Unlike in reality, the interest rate cannot be negative.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

What economic data is shown in Mopos?

• Nominal interest rate (in percent): In Mopos, the key interest rate is the same as the market rate that applies to consumers and businesses.
• Inflation: Increase in general level of prices in percent compared to year-back quarter (0–2% = price stability)
• Output gap: Business cycle indicator0% = balanced economy, >1% = boom, <−1% = recession)

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

What is an output gap?

The actual output of an economy fluctuates around its long-term potential output.

• Potential output is the output that can be achieved at full capacity utilisation without causing additional inflationary pressure.
• If actual output exceeds potential (gap >0%), inflation tends to rise.
• If actual output is lower than potential (gap <0%), inflation tends to fall.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

What are shocks?

In addition to monetary policy, Mopos features four types of unforeseeable events that can influence the economy. The effect of these shocks is not limited to the short term, but can persist over several periods before disappearing again.

• Demand shocks (long-term effects), e.g. a decline in export demand
• Supply shocks (very long-term effects), e.g. a disruption in global supply chains
• Inflation shocks (short-term effects), e.g. a sudden rise in commodity prices
• Exchange rate shocks (very long-term effects), e.g. an abrupt appreciation of national currency

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

Scenario mode

How are forecasts generated in Mopos?

• Developments in inflation and economic activity are dependent on three factors: past conditions, monetary policy and unforeseen events (shocks).
• When forecasting inflation and economic activity, the most plausible assumptions possible are made with regard to the future development of shocks.
• As these assumptions are not usually accurate, the actual values may differ from those forecast.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

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Scenario mode

What is a simulation?

• Simulations present a more or less simplified version of reality; Mopos is no different.
• Many of the challenges encountered in monetary policy in practice do not arise in the Mopos simulation. For instance, only one interest rate is used in the model.
• This means, however, that some of the fundamental difficulties in monetary policy as well as the underlying dynamics of the economy become all the more apparent.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

11

Scenario mode

What data is used in Mopos?

• The Mopos simulation is based on an economic model that realistically depicts key economic relationships.
• The simulated data is based on real economic conditions, but does not relate to a particular country.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

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Scenario mode

Predefined scenarios

There are four scenarios to choose from in scenario mode. Each one comes with a short introductory text.

• Calm waters (16 quarters – easy): Normal economic development
• Soft landing (20 quarters – easy to intermediate): The challenge here is to raise interest rates without acting too quickly (risking recession) or too slowly (risking excessive inflation)

• Threat of deflation (20 quarters – intermediate to demanding): Multiple changes in interest rate policy necessary; timing is critical

• Stagflation (20 quarters – demanding): Delicate balance between returning to price stability and combating recession

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

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Scenario mode

Debriefing of term in office

At the end of each scenario, Mopos provides a debriefing of your term in office, with time series charts for the nominal interest rate, inflation and output gap, as well as the following additional information:

• Key figures: Averages and standard deviations for inflation and the output gap. These serve to assess how well monetary policy objectives – price stability and balanced economic development – have been achieved. The smaller the deviation, the better the performance.

• Emoji feedback: Visual evaluation based on mandate criteria and defined benchmark values

Please note: Since the monetary policy mandate cannot be fully met in all scenarios, the debriefing is based on benchmark values in such cases. The emoji feedback takes this into account, thus allowing an objective evaluation of your term in office.

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

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Start Mopos

To start the simulation, go to mopos.iconomix.ch Good luck!

Introduction to Mopos – Scenario mode | © www.iconomix.ch

08.12.2025

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