Scandinavian Working Papers in Economics

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 ()
Additional contact information
Annika Alexius: Department of Economics, Stockholm University
Bertil Holmlund: Department of Economics, Uppsala University, Postal: Box 513, 751 20 Uppsala, Sweden

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

JEL-codes: E24; J60

33 pages, February 28, 2008

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