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IFAU - Institute for Evaluation of Labour Market and Education Policy Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2008:5:
Monetary policy and Swedish unemployment fluctuations

Annika Alexius () and Bertil Holmlund ()

Abstract: A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more persistent in countries with highly regulated labor markets. We study the Swedish experience of unemployment and monetary policy. Using a structural VAR we find that around 30 percent of the fluctuations in unemployment are caused by shocks to monetary policy. The effects are also quite persistent. In the preferred model, almost 30 percent of the maximum effect of a shock still remains after ten years.

Keywords: Unemployment; monetary policy; structural VARs; (follow links to similar papers)

JEL-Codes: E24; J60; (follow links to similar papers)

33 pages, February 28, 2008

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