Working Paper Series, FIEF - Trade Union Institute for Economic Research
Per Lundborg and Hans Sacklén
Is There a Long Run Unemployment-Inflation Trade-off in Sweden?
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.
Keywords: Phillips curve; Efficiency wages; Near-rationality; (follow links to similar papers)
JEL-Codes: E24; E31; J41; (follow links to similar papers)
29 pages, December 28, 2001
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