The Possible Unemployment Cost of Average Inflation below a Credible Target

Lars Svensson

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 1, 258-96

Abstract: If inflation expectations become firmly anchored at the inflation target even when average inflation deviates from the target, the long-run Phillips curve becomes nonvertical. 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. (JEL D84, E24, E31, E52, E58)

JEL-codes: D84 E24 E31 E52 E58 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20130176
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Citations: View citations in EconPapers (41)

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Chapter: The Possible Unemployment Cost of Average Inflation below a Credible Target (2013)
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