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A0883
Title: Monetary policy, exchange rates and global inflation spillovers to Switzerland: An investigation with disaggregate data Authors:  Matthias Gubler - Swiss National Bank (Switzerland) [presenting]
Gregor Baeurle - Swiss National Bank (Switzerland)
Abstract: We investigate the impact of global inflation on Swiss inflation relying on a structural dynamic factor model. The model relates a large set of disaggregate prices to the key domestic and global macroeconomic factors. Particular focus is placed on the role of monetary policy and the exchange rate in the pass-through of global inflationary pressures to Swiss inflation. First tentative results suggest that an increase in global trend inflation, i.e. an increase in global inflation which is not fully counteracted by foreign monetary policy, leads to tighter monetary policy in Switzerland. As a result, the Swiss franc appreciates, mitigating spillovers to Swiss inflation. However, if global inflationary pressures are temporary as foreign monetary policy becomes sufficiently restrictive, the pass-through to short-term Swiss inflation tends to be accompanied by a slight depreciation of the Swiss franc. Despite of that, long-run inflation in Switzerland is stabilized. While aggregate inflation responds qualitatively similar to both shocks, the different channels through which global trend and temporary inflation transmit impacts on the cross-sectional distribution of price changes. Specifically, the opposite exchange rate responses lead to opposite adjustments of exchange rate sensitive goods prices.