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The Possible Unemployment Cost of Average Inflation Below a Credible Target. A Replication Study of Svensson (American Economic Journal: Macroeconomics, 2015)

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  • Oraby, Ramy

Abstract

This paper replicates the main analysis of Svensson (2015) with some expansion to the original analysis, mainly for the United States. Overall, the replication exercise successfully confirms the conclusions of Svensson (2015). In both Sweden and the United States, empirical evidence sup- ports the existence of a non-vertical long run Phillips curve. The slope of the long run Phillips curve recorded -0.75 in Sweden and -0.23 in the United States. While the average inflation rate in the United States was very close to its targeted level, the average inflation rate in Sweden was 0.6 per- centage points below its targeted level over the sample period. The deviation of inflation rate from its targeted level in Sweden resulted in an unemployment cost equivalent to 0.8 percentage points over the sample period where the average unemployment rate recorded 7.4 percent compared with an estimated 6.6 percent had the average inflation rate been at its targeted level.

Suggested Citation

  • Oraby, Ramy, 2022. "The Possible Unemployment Cost of Average Inflation Below a Credible Target. A Replication Study of Svensson (American Economic Journal: Macroeconomics, 2015)," Journal of Comments and Replications in Economics (JCRE), ZBW - Leibniz Information Centre for Economics, vol. 1(2022-2), pages 1-21.
    • Handle: RePEc:zbw:jcreco:253653
    DOI: 10.18718/81781.24
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    References listed on IDEAS

    as
    1. Laurence Ball & Sandeep Mazumder, 2019. "A Phillips Curve with Anchored Expectations and Short‐Term Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(1), pages 111-137, February.
    2. 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 258-296, January.
    3. Andersson, Fredrik N. G. & Jonung, Lars, 2014. "The Return of the Original Phillips curve? An Assessment of Lars E. O. Svensson's Critique of the Riksbank's Inflation Targeting, 1997-2012," Working Papers 2014:28, Lund University, Department of Economics, revised 10 Dec 2015.
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    More about this item

    Keywords

    Monetary Policy; Central Banks; Phillips Curve; Inflation; Expectations; Unemployment; Replication Study;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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