Is There a Long Run Unemployment-Inflation Trade-off in Sweden?
AbstractWe present a small open economy version of Akerlof, Dickens and Perry (2000) and, based on Swedish data, we show that there exists a negatively sloped long run Phillips curve. Regressions on quarterly data 1963-2000 and estimated inflation expectations show that this Phillips curve is relatively robust and that an unemployment rate of close to two percent is consistent with an inflation target slightly above its present level of two percent. However, estimations based on survey data suggest that a considerably higher inflation rate, of around four percent, is necessary to yield a lowest sustainable unemployment rate. These latter estimates seem better adjusted to the recent Swedish macroeconomic experiences. If Sweden enters the EMU, and if the ECB targets inflation at a lower level than the Riksbank, employment as well as output will be lower than today. Moreover, if the inflation-unemployment trade-off differs widely across the member states of the EMU, then a single inflation rate in the EMU-area implies that long run unemployment rates will also differ across the member countries.
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Bibliographic InfoPaper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 173.
Length: 29 pages
Date of creation: 28 Dec 2001
Date of revision:
Phillips curve; Efficiency wages; Near-rationality;
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-01-22 (All new papers)
- NEP-IFN-2002-01-22 (International Finance)
- NEP-LAB-2002-01-22 (Labour Economics)
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