American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
The Possible Unemployment Cost of Average Inflation below a Credible Target
American Economic Journal: Macroeconomics
vol. 7,
no. 1, January 2015
(pp. 258–96)
Abstract
If inflation expectations become firmly anchored at the inflation target even when average inflation deviates from the target, the long-run Phillips curve becomes nonvertical. During 1997-2011, average inflation expectations in Sweden have been close to the inflation target of 2 percent, whereas average inflation has fallen short of the target by 0.6 percentage points. The estimates reported suggest that the slope of the long-run Phillips curve is about 0.75. Then the average unemployment rate has been about 0.8 percentage points higher than if average inflation had been on target. This is a large unemployment cost of undershooting the inflation target. (JEL D84, E24, E31, E52, E58)Citation
Svensson, Lars E O. 2015. "The Possible Unemployment Cost of Average Inflation below a Credible Target." American Economic Journal: Macroeconomics, 7 (1): 258–96. DOI: 10.1257/mac.20130176Additional Materials
JEL Classification
- D84 Expectations; Speculations
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E31 Price Level; Inflation; Deflation
- E52 Monetary Policy
- E58 Central Banks and Their Policies
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