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Monetary Policy and the Labor Market: A Quasi-experiment in Sweden

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  • John Coglianese
  • Maria Olsson
  • Christina Patterson

Abstract

We analyze a monetary quasi-experiment in Sweden from 2010–2011, when the Riksbank raised the interest rate substantially. We argue that this increase was beyond what labor market conditions warranted, driven instead by new concerns about financial stability. Using a battery of specifications that rule out domestic or international confounders, we show that this monetary tightening led to a substantial economic contraction, raising unemployment by 1–2 percentage points. Using administrative microdata, we find that sectors with nominal wage rigidity drove much of the response and that the monetary contraction was more regressive than the typical business cycle.

Suggested Citation

  • John Coglianese & Maria Olsson & Christina Patterson, 2025. "Monetary Policy and the Labor Market: A Quasi-experiment in Sweden," American Economic Review, American Economic Association, vol. 115(10), pages 3451-3486, October.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:10:p:3451-86
    DOI: 10.1257/aer.20231167
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    References listed on IDEAS

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    1. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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