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How to Explain the High Prices in Switzerland?

Summary

This article challenges the view that a lack of competition and a high level of regulations are the main causes of Switzerland’s high prices. First, we point out a number of stylized facts which are inconsistent with this popular view. Second, we econometrically asses the “competition-regulation hypothesis” together with the well-established determinants from the real exchange rate literature in a panel of 22 OECD countries from 1970 to 2004. We find that changes in the terms of trade and the degree of openness, and to a minor extent in government expenditures and the current account, explain the movements in the Swiss real exchange rate reasonably well over the last 35 years. Changes in regulations and competition as well as in relative productivities perform poorly as explanatory variables.

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Correspondence to Rolf Weder.

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Acknowledgement: We are grateful for comments from participants at the Annual Meetings of the Canadian Economic Association in Toronto and of the Swiss Society of Economics and Statistics in Geneva to a first and more extended version of this article.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( https://creativecommons.org/licenses/by/2.0 ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Sax, C., Weder, R. How to Explain the High Prices in Switzerland?. Swiss J Economics Statistics 145, 463–483 (2009). https://doi.org/10.1007/BF03399292

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  • DOI: https://doi.org/10.1007/BF03399292

JEL-Classification

  • F14
  • N74

Keywords

  • real exchange rate
  • terms of trade
  • Balassa-Samuelson
  • regulations
  • Switzerland