Adaptation of Swiss price indices to Liechtenstein’s economic structure

Aggregates measured in money - i.e. nominal quantities (e.g. nominal GDP) - can change for various reasons. On the one hand, because quantities, for example of goods and services, change. On the other hand, however, also because of price changes. Since prices change over time (they usually rise in the long run), the price effect is estimated and removed in order to obtain real variables; especially when making comparisons over a longer period of time. This is because, in many cases, economic analysis is primarily interested in the quantity effect. Since no price indices are published for Liechtenstein, Swiss price indices such as the consumer price index or the GDP deflator are usually used for price adjustments. This approach is justified because Liechtenstein is part of the Swiss currency and customs area, some taxes and import duties that affect prices are levied jointly (e.g. value added tax) and because the living standards, the level of economic development and the economic structure are similar in both countries. It can be assumed that the difference in the price development between Liechtenstein and Switzerland is similar to that between individual Swiss cantons (for which no separate price indices are collected). However, a better adjustment to Liechtenstein's circumstances can be achieved by reweighting the Swiss industry sub-indices. 

In the project, this was carried out exploratively for the calculation of a GDP deflator specific to Liechtenstein and the results were published in the Financial Stability Report 2024 of the Liechtenstein Financial Market Authority. In the future, this procedure could also be carried out for export and import prices; the necessary preparatory work has already been carried out. However, as Liechtenstein’s accession to the IMF is expected to lead to an expansion of public statistics and the IMF has already issued recommendations for the official collection of Liechtenstein-specific price indices, a decision on a possible addition to the project will be made at a later date.

The adapted price indices are to be integrated into the Applied Economic Analysis database and made available to the public via the data pool.

Collaboration: Lukas Hasler

Project duration: 2022–2024