Exchange rate pass-through in Switzerland: Evidence from vector autoregressions

This paper investigates the pass-through of exchange rate and import price shocks into different aggregated prices in Switzerland. The baseline analysis is carried out with identified vector autoregressive (VAR) models. The data set comprises monthly observations and pass-through effects are quantified by means of impulse response functions. Evidence shows that the exchange rate pass-through is substantial (al-though incomplete) into import prices, but very moderate into total consumer prices. These results are remarkably robust to a number of alternative specifications of the model, such as the use of different information sets, identification schemes and con-sumer price measures. Moreover, a sub-sample analysis reveals that the pass-through into consumer prices decreased significantly in the 1990s as compared to previous decades. This decrease coincided with a shift towards lower and more stable con-sumer price inflation. JEL Classification Number: C32, E31, F41. ∗I am very grateful to Manuel Wälti for many helpful comments and discussions. Furthermore, I wish to thank Andreas Fischer, Marco Huwiler and Attilio Zanetti for comments on earlier drafts. Feedback from participants at the Swiss National Bank brown bag seminar in September 2005 is also acknowledged. The views expressed herein are solely mine and do not necessarily reflect the views of the Swiss National