the Swiss franc to the U.S. dollar. In so doing, the Swiss monetary authorities gained control over’ the domestic money stock. ‘I’his article describes the m’ole of money demand estimates in the new monetaty policy. It then assesses this foundation of policy by developing a statistical model for’ money demimand tailored to Ike current exchange rate and monetary conttol regime. SWISS MONETARY POLICY Under the Br’etton Woods system, Switzer-land was one of many countries to experience the transmission of U.S. intlation to its economy. Because the Swiss National Bank pegged the cxchange rate of the Swiss franc against the U.S. dollam’, there was a close connection between U.S. and Swiss inflation. Ar-bitrage saw to it that changes in the dollar prices of internationally traded goods were matched by proportional changes in corresponding Swiss franc prices. Competition caused the prices of Swiss domestic goods to keep pace with the prices of internationally traded goods. Meanwhile, the public adjusted the Swiss money stock to the rising price level, in order to hold real money balances at the desired level.