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The Possible Unemployment Cost of Average Inflation below a Credible Target
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies. Centre for Economic Policy Research (CEPR), Bulgaria; National Bureau of Economic Research (NBER), USA.
2015 (English)In: American Economic Journal: Macroeconomics, ISSN 1945-7707, E-ISSN 1945-7715, Vol. 7, no 1, 258-296 p.Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
2015. Vol. 7, no 1, 258-296 p.
National Category
Economics and Business
URN: urn:nbn:se:su:diva-114362DOI: 10.1257/mac.20130176ISI: 000347475900008OAI: diva2:793133


Available from: 2015-03-06 Created: 2015-03-02 Last updated: 2015-03-06Bibliographically approved

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Svensson, Lars E. O.
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