The Possible Unemployment Cost of Average Inflation below a Credible Target / Lars E.O. Svensson.

Format:

Book

Author/Creator:

Svensson, Lars E.O.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19442.

NBER working paper series no. w19442

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

If inflation expectations become firmly anchored at the inflation target even when average inflation deviates from the target, the long-run Phillips curve becomes non-vertical. 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.

Notes:

Print version record

September 2013.