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

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  • Jonung, Lars
  • Fregert, Klas

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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Bibliographic Info

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

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  1. Groth, Charlotta & Johansson, Asa, 2004. "Bargaining structure and nominal wage flexibility," European Economic Review, Elsevier, Elsevier, vol. 48(6), pages 1349-1365, December.
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Citations

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Cited by:
  1. Avouyi-Dovi, Sanvi & Fougère, Denis & Gautier, Erwan, 2011. "Wage Rigidity, Collective Bargaining and the Minimum Wage: Evidence from French Agreement Data," IZA Discussion Papers 5835, Institute for the Study of Labor (IZA).
  2. Erixon, Lennart, 2011. "Under the influence of traumatic events, new ideas, economic experts and the ICT revolution - the economic policy and macroeconomic performance of Sweden in the 1990s and 2000s," Research Papers in Economics, Stockholm University, Department of Economics 2011:25, Stockholm University, Department of Economics.
  3. Holmlund, Bertil, 2012. "Wage and Employment Determination in Volatile Times: Sweden 1913–1939," Working Paper Series, Center for Labor Studies, Uppsala University, Department of Economics 2012:7, Uppsala University, Department of Economics.
  4. Erwan Gautier & Denis Fougère & Sanvi Avouyi-Dovi, 2009. "Les négociations salariales en France : une analyse à partir de données d’entreprises (1994 ‑ 2005)," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 426(1), pages 29-65.
  5. Jonung, Lars, 2009. "Financial Crisis and Crisis Management in Sweden. Lessons for Today," ADBI Working Papers, Asian Development Bank Institute 165, Asian Development Bank Institute.
  6. Lars Jonung & Jaakko Kiander & Pentti Vartia, 2008. "The great financial crisis in Finland and Sweden - The dynamics of boom, bust and recovery, 1985-2000," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 350, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. Creel, Jérôme & Hubert, Paul, 2012. "Constrained discretion in Sweden," Research in Economics, Elsevier, Elsevier, vol. 66(1), pages 33-44.
  8. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
  9. Andersson, Fredrik N. G. & Jonung, Lars, 2014. "The Return of the Original Phillips curve? An Assessment of Lars E. O. Svensson's Critique of the Riksbank's Inflation Targeting, 1997-2012," Working Papers, Lund University, Department of Economics 2014:28, Lund University, Department of Economics.

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