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Inflation Targeting Is a Success, So Far: 100 Years of Evidence from Swedish Wage Contracts

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Author Info
Jonung, Lars
Fregert, Klas

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Abstract

We evaluate the Swedish inflation targeting regime adopted in 1993−1995 using a novel approach based on a unique data set on the characteristics of collective wage agreements between 1908 and 2008. We find that the inflation targeting regime of 1995−2008 stands out as an exceptionally stable policy regime as judged by the willingness of wage contract-makers to repeatedly commit to three-year non-indexed wage agreements. Inflation targeting gained instant credibility in the sense that the labor market organizations entered long-term wage agreements at the same time as this new regime was announced. Inflation targeting has thus reduced macroeconomic uncertainty compared to previous regimes adopted in Sweden, including the gold standard before and after World War I, the price level targeting of the 1930s, the Bretton Woods period of fixed exchange rates. As judged by the reactions of the labor market participants, inflation targeting in Sweden is a success¯at least so far. --

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Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 2 (2008)
Issue (Month): 31 ()
Pages: 1-25
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Handle: RePEc:zbw:ifweej:7398

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Related research
Keywords: Inflation targeting; policy regime; contract length; wage indexation; Lucas critique; Sweden; credibility;

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Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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  3. Horn, Henrik & Persson, Torsten, 1988. "Exchange rate policy, wage formation and credibility," European Economic Review, Elsevier, vol. 32(8), pages 1621-1636, October. [Downloadable!] (restricted)
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  5. Jonung, Lars, 1979. "Knut wicksell's norm of price stabilization and Swedish monetary policy in the 1930's," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 459-496, October. [Downloadable!] (restricted)
  6. Robert Rich & Joseph Tracy, 2000. "Uncertainty and Labor Contract Durations," NBER Working Papers 7731, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Rose, Andrew & Mihov, Ilian, 2008. "Is Old Money Better than New? Duration and Monetary Regimes," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2(13), pages 1-24. [Downloadable!]
    Other versions:
  8. Christofides, Louis N. & Peng, Chen, 2006. "Contract duration and indexation in a period of real and nominal uncertainty," Labour Economics, Elsevier, vol. 13(1), pages 61-86, February. [Downloadable!] (restricted)
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  9. Berg, Claes & Jonung, Lars, 1999. "Pioneering price level targeting: The Swedish experience 1931-1937," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 525-551, June. [Downloadable!] (restricted)
    Other versions:
  10. Bordo, Michael D. & Schwartz, Anna J., 1999. "Monetary policy regimes and economic performance: The historical record," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 3, pages 149-234 Elsevier. [Downloadable!] (restricted)
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  19. Lin, Shu & Ye, Haichun, 2007. "Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2521-2533, November. [Downloadable!] (restricted)
  20. Lennart Erixon, 2008. "The Swedish third way: an assessment of the performance and validity of the Rehn--Meidner model," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 367-393, May. [Downloadable!] (restricted)
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