The Persistence of Inflation in Switzerland: Evidence from Disaggregate Data

Abstract

This paper investigates persistence of Swiss consumer price in∞ation using aggregate and disaggregate in∞ation data covering 1983{2008. We document that persistence of sectoral in∞ation rates is below persistence of aggregate in∞ation. Our main flnding is that in∞ation persistence signiflcantly declines in the early 1990s. An estimated factor model reveals that in∞ation persistence stems from a persistent component that is common to in∞ation rates across sectors. Both the relevance and the persistence of the common component decline over time. Depending on the sample period and aggregation level, 70 to 90 percent of the variance in sectoral in∞ation rates is accounted for by short-lived sectoral factors.