Inflation, Inflation Variability and Relative Price Variability in Switzerland

In the discussion on the costs of inflation, inflation variability and relative price variability are usually qualified as being more harmful than the size of the inflation rate per se. However, there are strong theoretical and empirical doubts in literature that inflation, its variability and relative price variability are independent of each other. In keeping with most empirical work for other countries, this paper finds a positive relation between inflation, its variability and relative price variability in Switzerland. This result is interesting as Switzerland is a traditional low-inflation country. Thus, the above mentioned correlations seem to hold even at low inflation rates.