Is There a Long Run Unemployment-Inflation Trade-off in Sweden?
Author InfoLundborg, Per (Trade Union Institute for Economic Research) Sacklén, Hans (Trade Union Institute for Economic Research) Abstract We present a small open economy version of Akerlof, Dickens and Perry (2000) and, based on Swedish data, we show that there exists a negatively sloped long run Phillips curve. Regressions on quarterly data 1963-2000 and estimated inflation expectations show that this Phillips curve is relatively robust and that an unemployment rate of close to two percent is consistent with an inflation target slightly above its present level of two percent. However, estimations based on survey data suggest that a considerably higher inflation rate, of around four percent, is necessary to yield a lowest sustainable unemployment rate. These latter estimates seem better adjusted to the recent Swedish macroeconomic experiences. If Sweden enters the EMU, and if the ECB targets inflation at a lower level than the Riksbank, employment as well as output will be lower than
