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Is There a Swiss Price Puzzle?

  • Daniel Kaufmann
  • Sarah M. Lein

This paper estimates the response of consumer prices to a monetary policy shock in Switzerland. We find that there is no evidence of a price puzzle at the aggregate level. This is because our factor-augmented vector autoregression (FAVAR) avoids misspecification by including more information than a traditional VAR. However, the response is still delayed by at least four quarters, partly because there is a price puzzle in some sectors. In particular, rents tend to rise after a monetary policy tightening because there are legal provisions in Switzerland which link them to interest rates. But durable goods prices also rise, which is consistent with the existence of a cost channel of monetary policy.

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Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 148 (2012)
Issue (Month): I (March)
Pages: 57-75

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Handle: RePEc:ses:arsjes:2012-i-3
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