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Is There a Long Run Unemployment-Inflation Trade-off in Sweden?

Author

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  • Lundborg, Per

    (Trade Union Institute for Economic Research)

  • Sacklén, Hans

    (Trade Union Institute for Economic Research)

Abstract

We 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.

Suggested Citation

  • Lundborg, Per & Sacklén, Hans, 2001. "Is There a Long Run Unemployment-Inflation Trade-off in Sweden?," Working Paper Series 173, Trade Union Institute for Economic Research.
    • Handle: RePEc:hhs:fiefwp:0173
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Holmlund, Bertil, 2003. "The Rise and Fall of Swedish Unemployment," Working Paper Series 2003:13, Uppsala University, Department of Economics.
    2. Liam Graham & Dennis J. Snower, 2008. "Hyperbolic Discounting and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 427-448, March.
    3. Lundborg, Per, 2005. "Wage Fairness, Growth and the Utilization of R&D Workers," Working Paper Series 206, Trade Union Institute for Economic Research.
    4. Norén, Ronny, 2002. "Europe’s Lack of Structural Transformation and Necessary Policy Changes of EMU," Umeå Economic Studies 598, Umeå University, Department of Economics.
    5. Bryan, Michael F. & Palmqvist, Stefan, 2005. "Testing Near-Rationality using Detailed Survey Data," Working Paper Series 183, Sveriges Riksbank (Central Bank of Sweden).
    6. Steinar Holden, 2005. "Wage Formation under Low Inflation," Springer Books, in: Hannu Piekkola & Kenneth Snellman (ed.), Collective Bargaining and Wage Formation, pages 39-57, Springer.
    7. Stefan Palmqvist & Michael F. Bryan, 2005. "Testing Near-Rationality Using Detail Survey Data," Computing in Economics and Finance 2005 371, Society for Computational Economics.
    8. Michael F. Bryan & Stefan Palmqvist, 2005. "Testing near-rationality using detailed survey data," Working Papers (Old Series) 0502, Federal Reserve Bank of Cleveland.
    9. Noren, Ronny, 2003. "Europe's lack of structural transformation and necessary policy changes of EMU," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 543-554, September.
    10. Selén, Jan & Ståhlberg, Ann-Charlotte, 2004. "Wage and Compensation Inequality — How Different?," Working Paper Series 197, Trade Union Institute for Economic Research.
    11. Fredrik Carlsen, 2006. "Election cycles, party ideology and incumbent popularity: theory and evidence for OECD economies," Working Paper Series 7906, Department of Economics, Norwegian University of Science and Technology.
    12. Janet L. Yellen & George A. Akerlof, 2006. "Stabilization Policy: A Reconsideration," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 1-22, January.
    13. Steinar Holden, 2002. "The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe," NBER Working Papers 8865, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Phillips curve; Efficiency wages; Near-rationality;
    All these keywords.

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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