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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.

Suggested Citation

  • Daniel Kaufmann & Sarah M. Lein, 2012. "Is There a Swiss Price Puzzle?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(I), pages 57-75, March.
  • Handle: RePEc:ses:arsjes:2012-i-3

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    References listed on IDEAS

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    13. Henzel, Steffen & Hülsewig, Oliver & Mayer, Eric & Wollmershäuser, Timo, 2009. "The price puzzle revisited: Can the cost channel explain a rise in inflation after a monetary policy shock?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 268-289, June.
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    Cited by:

    1. Kaufmann, Daniel & Lein, Sarah M., 2013. "Sticky prices or rational inattention – What can we learn from sectoral price data?," European Economic Review, Elsevier, vol. 64(C), pages 384-394.
    2. Sylvia Kaufmann & Christian Schumacher, 2013. "Bayesian estimation of sparse dynamic factor models with order-independent identification," Working Papers 13.04, Swiss National Bank, Study Center Gerzensee.
    3. Marco Huwiler & Daniel Kaufmann, 2013. "Combining disaggregate forecasts for inflation: The SNB's ARIMA model," Economic Studies 2013-07, Swiss National Bank.

    More about this item


    monetary policy transmission; price puzzle; cost channel; factor-augmented VAR;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis


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