Inflation targeting was adopted by several countries, including Sweden, in the 1990s. We evaluate the Swedish inflation targeting regime since 1995 using a novel approach based on a unique data set on the characteristics of collective wage agreements between 1908 and 2008. First, we establish that the length of wage contracts decreases in response to an increase in ?macroeconomic uncertainty? across policy regimes. Second, using contract length as the assessment criteria for regime performance, 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. In addition, 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 during the 20th century. Our approach to evaluate inflation targeting is different from the traditional one commonly based on cross-section samples comparing inflation outcomes. Instead we focus on the actual decisions of private-sector wage setters under different monetary regimes. Judging from their behavior across a century of observations, inflation targeting in Sweden is a success ? at least so far.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number
2008-24.
Find related papers by JEL classification: E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data) E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: