The Possible Unemployment Cost of Average Inflation below a Credible Target
If inflation expectations become firmly anchored at the inflation target even when average inflation deviates from the target, the long-run Phillips curve becomes non-vertical. 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.
-
-
Copy CitationLars E.O. Svensson, "The Possible Unemployment Cost of Average Inflation below a Credible Target," NBER Working Paper 19442 (2013), https://doi.org/10.3386/w19442.Download Citation
-
Published Versions
The Possible Unemployment Cost of Average Inflation below a Credible Target, Lars E. O. Svensson. in Lessons from the Financial Crisis for Monetary Policy, Gertler. 2015
Lars E. O. Svensson, 2015. "The Possible Unemployment Cost of Average Inflation below a Credible Target," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 258-96, January. citation courtesy of 
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos.
