Scandinavian Working Papers in Economics

Working Paper Series,
Trade Union Institute for Economic Research

No 191: Does Inflation Targeting Matter for Labour Markets? – Some Empirical Evidence

Anna Larsson and Johnny Zetterberg
Additional contact information
Anna Larsson: Department of Economics, Stockholm University, and, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden
Johnny Zetterberg: Trade Union Institute for Economic Research, Postal: FIEF, Wallingatan 38, SE-111 24 Stockholm, Sweden

Abstract: This paper investigates the impact of inflation targeting on wage formation and unemployment using a panel of 17 OECD countries 1972-2000. Five of the countries included in the study have combined floating exchange rates with explicit inflation targets during the 1990s. Using a theoretical framework for a small open economy, we present simulation results and empirical tests of the model using two different methods. There is some weak evidence that inflation targeting matters for labour markets.

Keywords: Wage bargaining; Monetary regime; Equilibrium (un)employment; Inflation target; Exchange rate target

JEL-codes: E24; J50

38 pages, September 17, 2003

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