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.