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​ Webb: ​www.mdh.se E-post: ​info@mdh.se Org.nr: ​2021002916

The relationship between inflation and

unemployment in Sweden.

A Bachelor Thesis on Economics

by

Edvin Sköld & Kaleb Tesfay

Mälardalen University

Bachelor thesis in Economics 15 credits Course code:​ NAA305 Supervisor: ​Johan Lindén Examinator:​ Christos Papahristodoulou Semester: ​VT/2020

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Abstract:

Purpose:​ This thesis has the purpose to investigate what the Phillips curve looks like after

the inflation target was introduced in Sweden after 1993 and to show that the relationship still applies and to estimate the slope of the curve.

Theory:​ Theory around the classical model of the Phillips curve, both articles who confirm

the Phillips curve and articles that criticize the Phillips curve. Literature study of a number of studies around the Phillips model as a forecasting method, focusing on Sweden. The Phillips curve is a theory of there being a negative relationship between inflation and unemployment.

Method: ​The analyses is built upon regressions performed in excel to create a scatter plot

graph with the purpose of illustrating the relationship between the selected variables. That is to create a Phillips curve and determine whether it hold true or not in Sweden during the selected time-series of 1996-2019. The data used in the thesis is collected from numerous websites, such as Riksbanken, SCB, Kantar sifo prosperas and konjunkturinstitutet.

Result:​ The thesis proves the validity of the Phillips curve in Sweden during the time-series

between 1996-2019. From the three regressions conducted in the thesis all show a negative relation which coincide with Phillips theory. The thesis also found the clockwise loop causation in the conducted regressions, which proves the theory William Phillips the man behind the curve built upon the Phillips curve. The study shows macroeconomic theories that the Phillips curve can be used as forecasting method for monetary policy makers.

We found in our main regression that if;

- unemployment increases by one percentage point, inflation will fall by -0,2231 percentage points according to the estimated Philip curve.

- Inflation expectations increases by one percentage point, real inflation will rise by 1,3436 percentage points according to the estimated Philip curve.

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1. Introduction 1 1.1 Purpose 2 1.2 Limitations 2 1.3 Choice of subject 2 1.4 Disposition 3 1.5 Background 3

2. Theoretical frame of reference 5

2.1 Theories 5

2.1.1 Unemployment 5

2.1.2 Inflation 6

2.1.3 Phillips curve 8

2.1.4 Friedman & Phelps 10

2.1.5 Robert Lucas, surprising the economy. 12

3. Method 15 3.1 Regressions 15 4. Data collection 16 4.1 Unemployment 17 4.2 Inflation 17 4.3 Inflation expectations 18 5. Results 19

5.1 Results from regressions 19

5.2 The causation movement of inflation and unemployment 22

6. Discussion 26

7. Conclusion 30

8. Litterature 31

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1. Introduction

Inflation and unemployment has been studied by economists for almost 100 years, one of the earliest paper to discuss this relationship was by Irving Fisher (62, 1926). However, it was not until 1958 when A. W. Phillips’s paper brought interest to the subject. Not far behind, two similar papers were written about the subject by L. A. Dick-Mireaux and J. C. R. Dow (49, 1959) and the other by Robert J. Ball and Lawrence R. Klein (115, 1959). Then why was Phillips paper the one that brought most attention? There are mainly three reasons to why the other two papers were slightly ignored. Firstly, Phillips paper was released earlier than the two other, secondly, Phillips paper was extended by Richard Lipsey (127, 1960). Lastly and arguably most important, Phillips was the one that introduced the acknowledged curve that his name bears.

Phillips curve is a tool used in national economics which model was first introduced during 1960s. The model describes a negative relationship between inflation and unemployment. The last few decades the model has been the tool used by monetary policy makers to forecast inflation and determine monetary policy (Karlsson & Österholm, 2018b). In theory there is a relationship between inflation and unemployment in the Phillips curve, where high inflation results in low unemployment, the same is valid for high unemployment resulting in low inflation Phillips (1958). In an economy such as Sweden, there is an ambition to keep inflation and unemployment at a low and stable levels, these are general monetary policy aims for the global economy Gottfries (2013).

In Sweden, the central bank (Riksbanken) is the responsible entity to maintain the monetary value through monetary policy measures, by stabilizing the general price rise which

contributes to economic growth and development. This is done by controlling the price rise on products and services, since high inflation and insecurities in the economy stagnates economic activities such as investments which takes damage from increasing capital costs (Sveriges Riksbank 2018a; Sveriges Riksbank 2018b). Price Stability is maintained by the central bank to create expectations in the economy with clear and credible aims for future inflation. Monetary policy works best in an open economy with a floating exchange rate in

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the short-run. Which can be seen in Sweden where inflation has been kept low and stable since the change from fixed exchange rate to floating exchange rate after the financial crisis in the early 1990s.

Repo-rate (styrräntan) which is an aid within monetary policy to help preserving inflation stable. Decisions on the repo-rate is based on forecasts to be used by several models, of which the Phillips curve is one of the models that is based on data from previous periods to forecast future inflation. Forecasts could be misleading in the event of unpredictable

disruptions in the form of changes in oil prices, energy prices and expectations of monetary value. In conclusion, disruptions and the lagging effect of interest rates make central banks decisions on how to conduct monetary policy more difficult to achieve price stability Gottfries (2013).

1.1 Purpose

This thesis has the purpose to investigate what the Phillips curve looks like after the inflation target was introduced in Sweden after 1993 and to show that the relationship still applies and to estimate the slope of the curve.

1.2 Limitations

The authors have chosen not to include the repo-rate into the regressions analyses, since the repo-rate is an effect of inflation expectations and therefore, does not contribute to the equations and their results. A second limitation is that the thesis only applies data from 1996 with the reasoning that for inflation expectations to be well-anchored with the inflation aim, it takes one or two years for the central bank to master the usage of monetary policy to steer towards the inflation aim Svensson (2015). Choice of country is based on that the Swedish central bank has an incorporated inflation aim and its own currency.

1.3 Choice of subject

The authors have chosen to write a thesis regarding the relationship between inflation and unemployment in Sweden after the inflation aim was implemented by the Central bank. By

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measuring the relationship of these two variables, the chosen method is to perform regression tests to find whether there is a negative, positive or no relationship at all. The Phillips curve which is created by performing regression analyses will be conducted in excel and presented in the thesis. By reading previous articles in similar areas the authors concluded that

regression analyses to be the best fit and method to use while investigating the relationship of inflation and unemployment. The topic chosen is motivated by previous studies and interest in the area during the education taken by the authors.

1.4 Disposition

The study is disposed by introduction and background in chapter one, where general

information about the topic are presented and giving readers basic knowledge of the content. In chapter two the authors present the method describing how the regressions are performed and explaining the chosen variables and where the data is collected from. Chapter three presents theory used in the study which both confirms what the Phillips curve stands for and theory that criticize it. This is followed by results and discussion of the regressions and the meaning of the conducted data and conclusion of what the thesis has shown.

1.5 Background

Inflation in Sweden has not always been stable. During 1970-1980s there were heavy

fluctuating inflation which led to new reforms in Sweden in the late 1990s. The central bank in 1993 introduced an inflation aim. This aim has worked as a benchmark for households and organizations regarding inflation for the future, in order for households and organization's to make good financial decisions. Inflation since then has been stable and generated a good and sustainable growth in Sweden (Sveriges Riksbank, 2018a)

However, the relationship between inflation and unemployment was criticized by other economists such as Friedman (1968) and Phelps (1967) who stated that the relationship only applies in the short run since inflation expectations in the long run will be equal to the actual inflation and unemployment at their equilibrium. The theory of Phillips Curve was therefore modified by extending the model with equilibrium unemployment (NAIRU) Gottfries (2013), which can be seen in the vertical line in figure 1, presented below.​More economists that has

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discussed the Phillips curve more recently are Karlsson & Östholm (2018), Yellen (2012) and Yellen (2015), with focus that real-economy and historically low interest rates should have had stronger effect on inflation. Something that was illustrated during the financial crisis 2008, when increase in unemployment pushed inflation downwards. However, the decrease in inflation did not correspond to the forecasted decrease in inflation. Many economists and policy makers therefore believe that the relationship between inflation and unemployment has weakened.

Figure 1, Phillips curve.

Yellen (2015) puts attention that the Phillips curve is an accepted tool for monetary policy makers around the globe to forecast inflation. However, empirical studies shows that the theory around the Phillips curve is not always sufficient to explain the relationship. Yellen (2015) mean that this helps the creation of insecure inflation forecasts that depends on the omission of other economic factors which affect inflation. To get more valid inflation forecasts Yellen (2015) highlights that predictions based on the Phillips curve needs to be

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Phillips curve is relevant within the discussion of monetary policy, but that the Phillips curve should be questioned.

There has continuously been criticism of the trade-off between inflation and unemployment from economists ever since the Phillips curve was introduced. For example Bernard Corry and David Laidler (1967) discussed that the negative trade-off is not a necessary theoretical result. More specifically they mentioned a possibility for the Phillips curve to turn upwards at critical levels of unemployment. This could be a possibility if quits rise as excess demand increase which in turn would lead to unemployment increase. Therefore, the paper written by Corry and Laidler concluded that the Phillips curve does not contribute to monetary policy trade-off problems. This was countered by John Vanderkamp (1968) who argues that the empirical evidence does not support Corry and Laidler. Lucas (1976) criticized the existence of the Phillips curve. Lucas stated that forecasts which is based solely on historical data by political decisions-makers should be considered non-reliable and naive. Furthermore, Lucas (1976) argued that variation within the political system has an impact on the structure of the econometric model, resulting in predictions of an unnatural exchange ratio and uncertain forecasts. This is also known as part of the macroeconomics by "Lucas critique".

2. Theoretical frame of reference

This chapter describes the relevant theories used in this paper.

2.1 Theories

A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under the sun. - Thomas Carlyle

2.1.1 Unemployment

Unemployment is the macroeconomic problem that affects people most directly and severely. Losing your job will affect your living standard and often your psychological well being directly. Which is why it is a topic that often is brought up when discussing the economic situation of a country or region. It is one of the most vital economic performances that can be

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measured and understandably the main topic politicians use when running for a election trying to sway the people to choose them. But what is the criterias for the term unemployed. Unemployment is defined according to Statistics Sweden​ ​a government agency that is responsible for the official Swedish statistics. Conducted mainly through assignments from the government (SCB) as a person that can work but have no employment. Excluding people that for example are full-time student, retired, a homemaker or someone that is “a

discouraged worker” meaning they want a job but have given up searching. These are defined as “not in the labor force”.

Because a worker is often considered the chief resource for an economy Mankiw (2016), maintaining workers employed is of utmost importance for the economic policymakers and leaders in the country. But also for the well being of the people and the overall economy, on a national and international stage. So when countries has high unemployment rates, it means that high percentages of the labor force, people that want and can work do not have jobs. The economy simply is operating below full capacity and is inefficient. Leading to government spending more on for example benefits and aids, creating a high cost of unemployment for the economy.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens - John Maynard Keynes

2.1.2 Inflation

Milton Friedman the great economist who 1976 received the Nobel prize in economics wrote that “Inflation is always and everywhere a monetary phenomenon”, but what is inflation? Inflation is a general increase in the price level from one year to the next Gottfries (2013). Money thus declines in value, that the price of the same basket of goods from a shop rises over time. Meaning that a high inflation rate is when prices are much higher next year than now and vice versa. But a negative inflation is called a deflation, allowing more goods and services to be bought for the same amount of money for example a year from now. Deflation is not that common as inflation, the last time Sweden had deflation was 2014, when the average inflation of Sweden was minus 0.18% (inflation.eu 2020).

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A low and stable inflation is optimal, because fluctuations in inflation will create random gains and losses for both lenders and borrowers. To maintain stable inflation levels is the primary goal and job of most central banks. This is done by the control the central bank have over the printing of money. They control the amount of money under circulation, the money supply. So if the money supply is greater than the money demand, meaning there is money “chasing” available, goods and services prices will increase. Already it can be seen a relation between the money supply, the rate it is printed and inflation. Therefore, the central banks can and tries to control the inflation and the long-run inflation of the nation by increasing or decreasing the growth of the money in circulation. By setting an inflation target, the central bank gives the households and banks a benchmark to guide their expectations of the

economy.

Sweden's central bank is the oldest central bank in the world, founded 1668. According to the central bank the reason for setting an inflation target is because it contributes to price

stability, which creates the conditions for good sustainable growth.The target is to hold inflation in terms of the CPIF (the consumer price index with a fixed interest rate) around two percent a year. It is set at two percent because it is considered to give sufficient room for manoeuvre for monetary policy, it is also a common level for inflation targets set by other central bank and an inflation rate of two percent also makes it easier for necessary

adjustments in relative prices and wages (Sveriges Riksbank 2018e).

In the labor market, wage cuts can be very hard to undergo. It can be because of legislation protecting the workers or the workforce simply will not accept it, and may go on a strike. Empirical studies confirm that nominal wages rarely fall Mankiw (2016). So when the supply and demand increase or decreases it can lead to a fall in the equilibrium real wage. When wages can not be cut, it will be stuck above the equilibrium level resulting in higher

unemployment. Therefore, the only way to cut wages is to let inflation do the work. For the average worker a two percent wage cut is worse than a three percent raise in a high-inflation climate of five percent inflation, even though it will result in the worker having some amount of purchasing power. Even if in the second scenario the worker will receive a bigger

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In economic theory the conclusions are sometimes less interesting than the route by which they are reached. - Piero Sraffa

2.1.3 Phillips curve

The Phillips curve was once referred to as “probably the single most important

macroeconomic relationship” by George Akerlof, a nobel prize winner (Mankiw 2019). The Phillips curve is named after A. Williams Phillips, a New Zealand economist who spent his academic career at London School of Economics as a professor. He is best know for the Phillips curve, however, Phillips also built and designed the MONIAC (Monetary National Income Analogue Computer). This computer used fluidic logic to model the workings of an economy, more specifically to model the national economic processes of the United

Kingdom.

Phillips published an article in 1958 stating that inflation and unemployment have a stable and inverse relationship. The theory is saying with economic growth comes inflation, which in turn should lead to more jobs and less unemployment Chappelow (2019). When

unemployment is high workers are easy to find, meaning the average wages are hardly raised if at all. When unemployment is low, wages needs to be raised because it is harder to attract workers. The rate these wages are raised are the inflation in wages which will eventually soon turn into inflation in prices of goods and services. Now the average Joe receives a higher paycheck each month, being able to pay more for his normal basket of goods and services. Low unemployment usually means an economy is growing, which is why Phillips says that economic growth comes with inflation.

According to the Phillips curve a low level of unemployment is associated with positive changes in wage rates and a high level of unemployment with negative changes in wage rates. To explain the shape of the Phillips curve in theoretical terms, unemployment is an indicator of the pressure of demand on the labour market. Meaning high pressure on the labour market,

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the level of unemployment falls. When there is an urge for workers, their wage rates will go up. When demand for workers are low, the high level of unemployment acts as a depresses for the wage rates pushing them down Jonung & Wadensjö (1980). The Phillips curve illustrated in figure 2, is drawn for a given expected average wage increase. It slopes downward because higher unemployment means that the flexible-wage firms will set lower wages Gottfries (2013).

Figure 2:

The Phillips curve creates an dilemma for the economic policy makers. Basically what it says is that there has to be a trade-off between inflation and unemployment. Another word

commonly used for inflation when regarding to the Phillips curve can be wage raises, “wage inflation” as it is says in figure 2 above. The curve shows that unemployment and inflation are negatively related in the short-run, meaning there has to be a short-run tradeoff between unemployment and inflation Gottfries (2013). If there is a fight to lower inflation, according to the curve the policy makers has to accept a higher level of unemployment. If the policy makers want to lower unemployment it will stimulate rises in wages and prices. Bringing higher levels of inflation Jonung & Wadensjö (1908).

A stable and reliable Phillips curve, for which changes in inflation are solely a function of unemployment are questioned. Inflation was during the late 60s and pretty much the whole of the 70s trending upwards. Although unemployment was higher in the 70s than it was in the 60s. This combination of increasing unemployment and increasing inflation was called Stagflation. Stagflation is a situation of falling output and rising prices; combination of

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stagnation and inflation Mankiw (2016). Stagnation is a period of none or little growth in an economy. A growth in the economy of less than two-three percent annually is considered stagnation, also often highlighted with high unemployment. Now stagflation is very similar to stagnation, in that there is a slow economic growth, with high level of unemployment. But the difference is that stagflation also has rising prices at the same time, causing inflation even if there is high unemployment and slow economic growth. This is an direct contradiction to the theory that is the Phillips curve, telling us there is an negatively relationship between

inflation and unemployment. A practical example of when this occurred was between 1973 and 1975. The U.S. economy posted six consecutive quarters of declining GDP and at the same time tripled its inflation. This rise of stagflation, is calling into question the validity of the Phillips curve Chappelow (2019).

If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand. - Milton Friedman

2.1.4 Friedman & Phelps

The theory of Phillips curve was published 1958. During this time the world economy has gone through a lot of changes and the society of today looks a lot different than it did in the 1960's. Therefore, naturally this theory has undergone a lot of testing and criticism. One of the biggest if not the biggest critique the phillips curve has received, is from Milton Friedman and Edmund Phelps. Two world renowned nobel laureates in Economics. Friedman and Phelps stated separately, that the theory of it being a tradeoff between inflation and unemployment does not hold up and there is a long-run equilibrium or natural rate of unemployment. Meaning no matter the inflation level, the unemployment rate will always eventually in the long-run reach the natural rate of unemployment. “Natural rate of

unemployment” is the term Friedman used to call what Phelps 1967 in his article ​PCs,

expectations of inflation, and optimal unemployment over time ​called long-run equilibrium

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Friedman did an AEA (American Economic Association) presidential address. Which was a presidential address from the learned society in the field of economics. They publish on one of the most prestigious academic journals in economics. Friedman published “The role of monetary policy”, in which he introduced the concept of the (NRU) natural rate of

unemployment. This AEA address has been considered one of the most influential. This meant that he wanted to include a vertical NRU in the long run when drawing a Phillips curve. By making this statement, Friedmans point is that politicians and policymakers have no ability to choose an unemployment rate that is not the natural rate. This is inline with what Phelps says with his theory of a long-run equilibrium rate of unemployment. These

statements by Phelps and Friedman would entirely eliminate any credibility the “original” Phillips curve has. But that is not what they say, their theories is in the long run. While Friedman claims that Phillips theory has some ground to stand on when it comes to the short-run effect of the inflation and unemployment negative relationship. Because there has to be a period after for example the unemployment level is lowered the short-run curve needs time to be shifted up whenever unemployment is pushed below the natural rate.

As can be seen from figure 3. If following the arrows moving between the different points, there is seen that eventually the unemployment rate will stay inelastic to the level of inflation. Meaning in the long-run this is how a Phillips curve graph should look according to Friedman and Phelps.

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By starting at point U and the policy makers want to reduce the unemployment and boost the economy, they will according to Phillips have to trade it for higher inflation. Motivating the move from point U to point V. But according to Friedman and Phelps this move is only temporary and eventually the unemployment will go back to the same level of

unemployment, motivating the move from point V to point W. So no matter the inflation the unemployment will eventually after an unspecified time of period move back to the same level of unemployment. Hence, it is called the natural level of unemployment or long-run unemployment rate. Therefore, the theory Phillips had of negatively correlated relationship of unemployment and inflation is true, but only in the short-run according to the theory of a single long-run or natural rate of unemployment of Friedman and Phelps.

To avoid criticism say nothing, do nothing, be nothing - Elbert Hubbard

2.1.5 Robert Lucas, surprising the economy.

Robert Emerson Lucas Jr. was an economist who 1995 received the Nobel Prize in Economics for applying and developing the theory of financial expectations which is an econometric hypothesis. He found that individuals like families or companies will offset intended results of monetary and national fiscal policy by making private decision based on anticipated results and past experiences Nolen (2010).

Lucas took the step of applying the assumption of people being rational used in

microeconomics and applied it to macroeconomics. Friedman and Phelps reasoned that Phillips theory of a negative relationship between unemployment and inflation was

applicable, but only in the short run. Until the economy in due time moved back to the natural rate of unemployment, meaning it was vertical. However, Robert Lucas (1972) using the PIP (policy-ineffectiveness proposition) claimed to have found another reason for this short-run

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tradeoff than the one Friedman and Phelps had of inertia. PIP is that monetary policy cannot systematically manage the level of employment in the economy. Therefore, if you base the theory on people being rational, then the systematic decisions the government makes to for example lower the unemployment level cannot work year after year. Because people are rational and will eventually anticipate these changes.

The Phillips curve says that if the government tries to get the economy going and growing by higher inflation. Wages will rise more quickly and unemployed workers will be fooled into taking jobs more quickly by making the nominal wages seem higher while they are in fact inflation-adjusted wages. In exchange for systematically raising inflation unemployment will fall. Lucas questioned this, making the argument that workers cannot be fooled several times with the same expected policy changes. Higher inflation will eventually stop leading to lower unemployment. Lucas used the idea of PIP and said that for unemployment to reduce there cannot be an predictable change in inflation. For it to be a change in unemployment there had to be an unanticipated monetary-driven demand expansion. Simply explained, there had to be an “error” in the forecasted inflation, a surprise Gordon (2018).

There is temporary information barriers making it difficult for firms getting information about prices in the economy other than their own output price, this creates an imperfect model. Organisations therefore tend to mix movements in the overall price level with a move in relative prices. This is important because a change in the relative price, changes the

optimal amount to produce. With unanticipated inflation raising the relative price of goods, individuals like a firm will be induced to increase the supply. Making the economy grow, firms hiring more workers and faster which results in reducing the unemployment rate. The output supplied, economic growth and eventually unemployment rate can be said to be derived from the deviation inflation has from the inflation-expectations. This backs the clamies Friedman and Phelps has about expectations-augmented Phillips curve with a vertical unemployment rate. But Lucas emphasises an issue of how people form expectations of the future. Expectations play an huge role in the economy, workers, families and organisations, big or small, make their decisions for today based on expectations of the future. If the government keeps deciding to embark on an expansionist monetary policy the economy and the agents in it will either according to Friedman and Phelps be “fooled” over and over again

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to lower unemployment as if the policy change was something new contributing to a growing economy or according to Lucas this will not work over and over again. Because the people are rational, and these expansionist monetary policies will be predicted and have no effect on the rate of unemployment. Unless they are bigger than expected, and thus comes as a

“surprise” to the economy. Either by a random shift in preferences, that changes the relative demand for goods or by a disturbance in the money supply. The inflation becomes much higher than forecasted, because when observed they have no real effect but when unobserved they will affect the wages and relative price of goods and services Khazri (2005).

Friedman and Phelps based the short-run effect of inflation on unemployment on the basis of the inflation expectations being adaptive. While Lucas claimed rational expectations,

economic agents like workers and families could anticipate in advance any systematic policy changes that would affect demand expansion. If plotting out a simple graph, with inflation on the vertical axis and unemployment on the horizontal axis using yearly data point for these factors. There will eventually create loops if following the data point in a yearly fashion, now what differentiates the Lucas approach to the more traditional Phillips approach is if these loops in the graph are created clockwise or counterclockwise. Because if they are moving like in figure 3 above, from point U to V to W etc. The loops will be formed clockwise or

counterclockwise if they do not follow this pattern. Because according to the more traditional explanation of the phillips curve the unemployment level affects the inflation level, the move in unemployment level this year will affect the inflation level next year that will eventually move back the unemployment level back to where it started from. If following this movement with a line, perhaps some kind of trendline, it will create a circle or loop from right to left and then back to the right meaning it is clockwise. According to Lucas the economic agents can anticipate the change in systematic policy changes like inflation changes. For there to be a continuous negative relationship between inflation and unemployment called a phillips curve the inflation change needs to come like a surprise and only then will it affect the

unemployment level. The inflation is what affects the unemployment level and if you follow this movement with the same kind of trendline as before the creations of these loops will be counterclockwise. Moving from the left to the right then back to the left. This will be explained in more detail in our results and discussion parts, were we will show this kind of

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3. Method

This chapter motivates and describes how the authors conducted the paper.

3.1 Regressions

The choice of using simple linear regression in this thesis is motivated in the following text. Simple linear regressions are a statistical method of analysis that helps estimate the relation between variables, these consist of one or more independent variable and one dependent variable. Regression is used to estimate the relationship by minimizing the sum of the squares between the observations and predicted values illustrated as a linear line. It is the most used method to obtain estimates, see Studenmund (2016). This thesis will perform both bivariate regressions, see equation 1, which is regressions with only one independent variable and multivariate regressions, see equation 2 and 3, that is regressions with more than one independent variable. Equation 3 is also non-linear with regards to unemployment squared being used. There are three equations used in this thesis to predict the desired variable and are shown below.

1. Regression equation Y : i = β0 + β X 1 1i (i = 1, 2 , … , N) 2. Regression equation Y : i = β0+ β X 1 1i+ β X 2 2i (i = 1, 2 , … , N) 3. Regression equation Y : i = β0+ β X 1 1i+ β X 2 2i+ β X 3 23i (i = 1, 2 , … , N) where:

Y i= the ith observation of the dependent variable

X 1i, X 2i, X 23i= the ith observation of the independent variable ● β0 , β1, β2, β3= the regression coefficients

● N = the number of observations

The dependent variable in this thesis is inflation (Y )i , whereas unemployment (X )1i , inflation expectations (X )2i and unemployment squared (X )23i are the independent variables used. All regressions tests are performed in excel. The test is to investigate if the Phillips Curve is still valid and what effect the changes of independent variables have on inflation in Sweden after the inflation aim was implemented. To prove the Phillips Curve validity in

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Sweden, the regressions need to have a negative correlation. The coefficient will be presented in a scatter plot diagram, also an existing tool in excel, by adding a trend-line (linear line) to the scatter plot diagram. The trend-line will either have a negative, positive or horizontal slope. Graphs from the regressions will be presented in the thesis to help illustrate the results from the regressions.

4. Data collection

The thesis applies data by a yearly basis on inflation, inflation expectations, unemployment and unemployment squared during 1996 to 2019. Chosen time series is motivated with the inflation aim being implemented in Sweden in 1993. However, in order for inflation

expectations to be well-anchored around the inflation aim, it usually takes a few years for the central banks to learn how to apply monetary policy to steer towards the inflation aim

Svensson (2015). This is also proven by the central bank in Sweden stating that “The idea of the tolerance interval was to make it clear that deviations from the inflation target were probable, and that the central banks aim was to try to limit these deviations. The inflation target would formally begin to apply from 1st January 1995. Over the two years leading up to 1995, monetary policy was to be aimed at preventing the ​underlying rate of inflation​ , which had decreased to a level around two per cent, from increasing again

(Sveriges Riksbank 2018c).

This thesis therefore applies data with start 1996 until 2019. The thesis uses data regarding unemployment from the ages 16-64 in Sweden. Unemployment and inflation data is gathered from SCB. Using quantitative research as the data-collection method, the authors will

investigate the relationship between inflation and unemployment in Sweden. All empirical data presented is from secondary sources such as MDH databases, public websites (e.g. Riksbanken, Statistiska centralbyrån, Kantar Sifo Prosperas) and previous articles. The results will be presented with discussions of the findings and with the help of graphical illustrations from the regression analyses performed.

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4.1 Unemployment

Unemployment data comes from SCBs database and is a part of the LFS (labour force survey (arbetskraftsundersökning “AKU”)) which are presented on a yearly basis found on the website. Statistics from LFS are used as a basis in decisions by the Government and the central bank in Sweden (Statistiska Centralbyrån, 2018). The age-span used consists of unemployment in percentage for people in Sweden between the ages 16-64. However, there are data the SCB provides that consists of ages between 15-74 that only provide data back to 2001. Since this thesis will analyse a time series further back than 2001, the authors have chosen to the first mentioned age-span of unemployment in Sweden (ages between 16-64). The authors believes that there should not be any effect to the results in the analysis in any specific direction by using a more narrow age-span.

4.2 Inflation

Inflation is an increase of the general price level, which means that consumers can buy less goods and services for the same amount of money. The money thus decreases in value. For example, it is expressed that the price of the same basket of goods in a store increases over time. However, if prices on a few selected goods or services increases, then it is not

considered inflation. Prices on single products can increase due to less supply or harder to come by. Such price increases are usually called relative price change and are thus not inflation. In order to talk about inflation, the general price level must be raised, that is, prices in general should increase and the price increase must also be permanent. For example, if the government increases value-added tax (VAT), it has a one-off effect on the general price level, but that does not mean that prices will continue to rise (Sveriges Riksbank 2018e)

The inflation data used comes from SCB:s Consumer price index (CPI) and was found presented with annual basis data, which is the most common datasource for inflation

calculations in Sweden. CPI is an index which measures development of prices on a group of products compared to last years prices. The idea is that CPI will reflect price development for the average consumer (Statistiska Centralbyrån, 2018). Inflation rate is obtained by

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comparing present CPI to previous CPI twelve months earlier, which gives the percentage price development during the previous year (SCB 2020).

4.3 Inflation expectations

The data regarding inflation expectations is collected from (Kantar Sifo Prosperas) and Trading Economics who in turn get their data from (Konjunkturinstitutet). The data from Kantar Sifo Prosperas reaches back to 2000, therefore Konjunkturinstitutet and Trading Economics is used to support the remaining years 1996-1999.

Long-term inflation expectations are a measure of the confidence of various actors in the economy has for the inflation aim. According to both pricing in financial markets and

survey-based measures, long-term inflation expectations have risen in Sweden since 2015 and the overall picture is that they have years back is close to 2 percent. This development differs from the rest of the world where expectations are developed weaker, especially in the euro area. Monetary policy focuses on stabilizing inflation around the inflation aim with the purpose to create stability and predictability in price and wage formation. To achieve the goal, it is important that the actors trust that the central bank returns inflation to the aim after disruptions that creates deviations of the aim. That long-term inflation expectations do not deviate too much from the aim is a sign that the actors in the economy have strong

confidence in monetary policy. In Sweden the long-term inflation expectations have increased since 2015 and the last few years been close to two percent. This applies to

long-term expectations measured both in surveys and from pricing in financial markets. This trend coincides with an rise in inflation and differs from developments in the outside world, where expectations have developed weaker, especially in the euro area as mentioned earlier (Kantar Sifo Prospera 2019). What is important to think about is the chance of inflation expectations being a big motivating factor for the upcoming year. Either that inflation

expectations is a driving factor for the inflation next year or that changes in the economy now will have a big effect on the inflation expectations the upcoming year. So in the results you may find that inflation expectations has a bigger effect on inflation than expected and that is why it is important to remember the point just mentioned. Expectations and the actual inflation can have an effect on each other that is stronger than anticipated, because it can

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capture more than one effect. So when seeing the effect inflation expectations has on inflation you have to be critical and reason in the other effects captured in this estimate. When the central bank implemented the inflation target 1993, the calculation were expressed from the rate of change in CPI by annual basis. From September 2017, the CPIF has replaced the CPI as a target variable for the central banks inflation target Riksbanken (2018).

5. Results

In this section the results from the regression analyses is presented, all analyses has been performed in excel.

5.1 Results from regressions

From the conducted regressions performed in excel with the purpose to examine the relationship between inflation and unemployment, there is seen clear linear lines with negative slopes in all three regressions conducted. The following text will describe which values in the regressions that is focused upon to determine the results whether the Phillips curve is applicable in Sweden and the effect of percentage changes in the independent variables has on the dependent variable, see table 1 below for key-values and figure 4 for a linear trend-line of the regression analyses with inflation and unemployment as the only variables and figure 5 with a polynomial trend-line.

With the value of the independent variable in the first regression being -0,474 for unemployment in relation to inflation. This means that for every percentage that

unemployment increases leads to a decrease in inflation by -0,474. The Phillips curve holds true in the sense of the negative relation between the variables exist during the selected time-series between 1996-2019. The second regression where inflation expectations were included into the equation, led to the relation between the variables changing, there became a decrease in the relation, that is, the value rose to -0,223 from -0,474. However, the Phillips curve still holds true since there is a negative relation between the variables, only that the relation is weaker. The last regression performed except the three previous variables inflation, unemployment and inflation expectations, included unemployment squared into the equation. The reason for using unemployment squared is to see if the fit of the equation will improve or impair. We wanted to see what will happen if make the linear equation an exponential, it is

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motivated by figure 5. This inclusion led to the relation of these variables sinking to -0,506 instead of -0,223, which is the result of a stronger negative relationship in the Phillips curve. However, looking at the t-value of regression 3 shows that it is not significant at all.

The table below shows the key-values from the regressions that has been focused upon in the making of the regression analyses in this thesis to help determine the results. (T-values for the respective parameter estimates are given in parentheses.)

Table: 1

Estimate Regression 1 Regression 2 Regression 3 Constant 4,7497*** 0,5889 ​1,8348 (4,900) (0,792) (0,452) Unemployment -0,4741*** -0,2231** -0,5063 (-3,769) (-3,027) (-0,557) Inflation expectations 1,3436*** 1,2960*** (7,669) (5,515) Unemployment^2 0,0166 (0,313) Standard error 0,8124 0,4265 0,4360 of estimate R 2 0,3924 0,8401 0,8409 R adj2 0,3647 0,8249 0,8170 F 14,208*** 55,182*** 35,239***

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Stars (*) after an estimates indicate the level of significance at which the estimate differs from zero according to a t-test, as follows:

***0.1%, **1%, *5%, +10%

Figure 4:

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5.2 The causation movement of inflation and unemployment

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Figure 6 is a scatter diagram, made out of the yearly data from 1996 to 2019.

Inflation on the vertical axis and unemployment on the horizontal axis. The authors have plotted the diagram and used a trendline to show the relationship the two variables have with each other. This type of trendline is called ”Moving average”, what this trendline does is to take the average of the data points used to draw the line. Making a more smooth line, averaging out the fluctuations from the data and creating a more clearer trend. What this graph show is a clockwise movement in a somewhat of a circular motion. Showing a clear negative relationship between inflation and unemployment. But what is significant with this is that the trendlines movement following the data points in a yearly order is moving in clockwise loops. Supporting Phillip in his theory of a negative relation between inflation and unemployment, whilst rejecting Lucas theory of there being a counterclockwise movement of inflation and unemployment.

To motivate why figure 6 supports the phillips theory, you have to understand the movement shown in the figure. We see a movement starting with a decrease in the unemployment level then causing a rise in the inflation level. This is seen continuously through the years in the figure with varying consistency. The trend line does not go thru all the data point only the averages of them, so for example during the years 2008 to 2011 we see that the loops can be seen as counterclockwise if the line was to go thru the data points. But this can be explained by the turbulent economic phase after the 2008 global financial crisis. This situation caused a disturbance in the movement expected by the theory shown in the earlier years. We do not think this should be interpreted as a failure in the theory because this was exceptional times. The loops shows that it is unemployment that drives changes in the inflation and not the other way around. When people receive jobs the economy heats up and prices of goods and

services rises as an effect of wage inflation. So when the inflation goes up the employers will have to cut workers because of the wage raises and then unemployment levels rise again. This is what is shown with the illustration of loops and also why during the years like 2008-2011 when the economy was in crumbles worldwide the inflation and unemployment did not move as they “should” of according to phillips and did not create as “smooth” clockwise loops. We are satisfied with this figure and do not think it is necessary to show a figure with a trendline going thru all the data points, because we have shown a more general broader movement

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supporting the phillips curve. There is hiccups in the movement but only clear disruptions of the movement has occured when there is a underlying economic crisis.

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When unemployment drops from one year to another the inflation for next year will rise. When the inflation has risen the unemployment level for next year rises, these events when plotted out will create a shape resembling a circle. So if the inflation is on the vertical axis and unemployment on the horizontal axis the circular movements are clockwise loops. The graph is over a 23 year period and as you see there has been about four to five completed clockwise “circular-loop” movements. This shows not only a clear relationship between inflation and unemployment but also that the relationship is negative and consistent. With a clockwise movement, it is in support of the theory that unemployment is what drives inflation and not inflation that moves unemployment.

Figure 7:

In figure 7, there is seen the movement expected in the theory of there being a long term level of unemployment. Where eventually the unemployment level regardless of the inflation level will move back to a set level of unemployment. In the short run you see a clear negative relationship between inflation and unemployment. The unemployment level decreases and inflation goes up. When this movement is averaged out for a longer period of time a more realistic graph will occur and the triangle in figure 7 becomes more of a loop. In the figure the movement is clockwise, the same as in figure 1. The result presented in figure 1 establishes the theoretical movement presented in figure 7.

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6. Discussion

As mentioned throughout this whole thesis the author's purpose was to investigate what the Phillips curve looks like after the inflation target was introduced in Sweden 1993 and to show that the relationship still applies and to estimate the slope of the curve. As mentioned

previously in the thesis, monetary policy changes in Sweden's Central bank usually takes 12-24 months before fully active and operational (Ekonomifakta, Fredrik Carlgren 2020). That is why the selected time-series starts in 1996 and not in 1994 to exclude data that has not yet been able to be adjusted to the new policy of the central bank. By performing regression analyses and creating Phillip curves to help illustrate and interpret the results to determine whether there is a negative, positive or non-existential relation of the chosen variables and determine what theory regarding the Phillips curve holds true in Sweden.

In this thesis the authors chose to follow the theory of the Phillips curve that Phillips (1958) stated, that is, there is a negative relation between inflation and unemployment, where unemployment is the variable affecting inflation and not vice versa. During the thesis, theory that proves and confirms with Phillips theory has been referred to and discussed as well as theory such as Lucas (1972) that criticizes the theory of Phillips who argues that the relation is inverse, that is, inflation being the variable affecting unemployment. This is stated to prove that all aspect of the Phillips curves theory has been researched upon and has not been

neglected by the authors. To prove a theory a thesis must be able to reject the counteractive theory, just as hypotheses. From what was found in this thesis is that the results prove the negative relation of inflation and unemployment in Sweden during the time-series 1996-2019 which coincides with Phillips theory. Meaning this thesis was able to confirm the existence of a negative relationship Phillips curve in Sweden. By looking at figure 1 in the thesis, which illustrates the relation of the Phillips curve with a long-run vertical line included. For this thesis to prove the theory of the Phillips curve in Sweden, the regressions performed would be needed to give similar results as of figure 1, that means to create a negative line from the data collected. Looking at the results from the conducted regressions as in figure 4 and 5, there is seen negative relationship lines between inflation and unemployment. These results

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from the regressions proves the theory of Phillips curve in Sweden during the selected time-series.

This thesis applied three equations stated in section 3.1, which all of these three equations provided similar results regarding the relationship of the selected variables. The difference in the equations results were that by including inflation expectations into equation 2 resulted in a weaker relation in the Phillips curve. Even if the relation was weaker, the level of

significance is stronger in the sense that the t-value is above 7 which is extremely high. From the results it can be seen that equation 2 is the best fit for this thesis. However, looking at the value 1,3436 in table 1 regarding inflation expectations, means that for every positive

inflation expectation percentage leads to an increase by 1,3436 percent in real inflation. This was a quite interesting result and it is not something that was expected. Why this is the result of equation 2 could be motivated by that the inflation expectations are conducted from previous inflation, which in theory in the long-run will result in inflation and inflation expectations being equal to one another Friedman (1968) and Phelps (1967), this was later extended by Gottfries (2013) who included the long-run vertical line. In equation 2 which consist of inflation, unemployment and inflation expectations, there is seen a clear linear line with a negative slope which confirm the theory of the Phillips curve in Sweden. Reasoning behind this could be the fact that Sweden has its own currency and an incorporated monetary policy controlled by the central bank. As Gottfries (2013) mentions, monetary policy

decision-makers strive for keeping inflation and unemployment at low and stable levels to help economic growth and give a feeling of security to the actors in the economy. With inflation and unemployment when there are no stable levels, in turn causes uncertainty and stagnates the economy, therefore, it is important that the central bank has a good monetary policy. With the regression results of equation 2 proving the theory of A. W. Phillips (1958), there is no doubt that there is a negative relation between inflation and unemployment in Sweden during the time-series 1996-2019. Regression 2 provided significance level below 0.1 percentage which confirms that the regression is indeed valid and holds true. Equation 3 provided a strong negative relation by only looking at the coefficient. However, the level of significance for regression 3 is weak when looking at table 1. It shows that the level of significance does not even come under ten percent. Regression 3 P-value of F variables are

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significant but individually the variables are not significant. This provides the thesis with bad results regarding equation 3 and that it does not contribute.

In the results shown in figure 6 which is revealing the movement between inflation and unemployment over a 23 year period. What was seen was a clear movement that was

clockwise emphasizing in the legitimacy of the theory that William Phillips explained using a curve he named after him, the Phillips curve. What was found most interesting about this movement is how it proves that it is the unemployment level that drives the level of inflation and not the other way around. The results that was found were in-line with what the theory said should happen. In figure 7 there can be seen a series of events explained simply as the movement from point A to B then eventually moving to point C with a curve through the graph that is the Phillips curve. In the results the authors can see that this theory is in fact true for the data that has been collected, the past 23 years are examined in the results and they fit the models good. In figure 5 using the data points, there is seen a curve in the graph that is very similar to figure 7 that is the usual “textbook graph” example when explaining the phillips curve. So with this result the authors feel confident in saying that the theory behind the Phillips curve can be seen as valid and as a simple tool useful for policy makers.

To further explain the movement found in figure 6, with the moving average trendline. First of all there should be mentioned that during this period 1996 to 2019, there has been several financial crisis and recessisons. The authors initially began examining the time period of 1993 to 2019 but found that in the beginning of the 90s Sweden were in a bad financial crises and had a though recession. That led to change the selected time period to start from 1996 because of the time it takes for monetary policy changes to make an effect. 2008 the worldwide financial crisis was undergoing hence the exceptional data point in the graphs. These events are important to mention because they explain the deviations from the movements that are expected, also that these events has made the trend line reduce the smoothness in its movement that it had the potential of having. But with this mentioned the clockwise loops can be explained using pretty basic assumptions of how the economy usually works.

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If the government want to boost the economy they need to focus on lowering the unemployment level, usually printing more money, cutting interest rates or using Fiscal policy as cutting taxes. Assuming this works perfectly the unemployment level will decrease and the economy grows. Now the inflation will rise, prices of goods and services goes up as more people have jobs and a stable income. The employers and all the companies will see this increase in price as an increase in demand and will increase production, hiring more people. This gives the opportunity for trade unions to negotiate for higher wages for their employees. Now the employers will need to lower the amount of workers because the equilibrium wage is now higher. Now Sweden are back to having a higher level of

unemployment but now also with a high level of inflation. As was seen in the results and as the theory claims higher unemployment levels will push down inflation. Both as the prices will be lower because of the high unemployment and people losing their mainstream of income but also because of actions the government can take for example raising the interest rate. The government never wants a high unemployment level, so they will never work to make people lose their jobs. So the only factor they can raise and lower is the inflation. So the central bank will take measures to maintain the inflation stable.

The Swedish central bank has set a goal of a two percent yearly inflation, to try keep the economy stable but also to try create some kind of inflation expectations for the different participants in the economy like companies and households so they can plane present and future economic decisions. In regression 2 and 3, there was included “inflation expectations” because the authors wanted to find if it had an impact. The thought behind this is as

mentioned above, that with inflation expectations the participants in the economy will have something to go in when planning their economic decisions. To see if the effect of the results came out any different, and they did. With expectations unemployment had a weaker negative relationship. So if the participants know what to expect the relationship will not be as strong because you can take actions today for the future, instead of having tomorrow come as a surprise.

These policy decisions and the reactions of the economy are not changes that happen overnight or over a period of weeks. The relationship between inflation and unemployment suffers of inertia and has to be seen over a longer period of time to see an relationship. There

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was results found in the regressions and graphs that are in-line with what the theory says and what the authors has as a hypothesis. The events explained above are what is shown in figure 6 and what makes the movements shown as loops and more importantly, clockwise. The negative relationship and how it is unemployment that will drive inflation is what is shown and concluded.

7. Conclusion

The purpose of this thesis were to answer the question whether the Phillips curve is valid in Sweden and to what extent percentage changes in the independent variables, such as

unemployment, inflation expectations and unemployment squares has on inflation.

The Phillips curve is an accepted tool used by many central banks in monetary policy to forecast inflation. The forecasts are applied in monetary policy decisions to keep inflation around the inflation target. To achieve credible inflation forecasts, new data need to be evaluated. This thesis therefore applies regressions analyses to test if the Phillips curve is valid in Sweden during the time-series between 1996-2019.

What is found in the thesis after conducting regressions analyses is that the Phillips curve is valid in Sweden. The three equations used with different variables included all provided a negative relation which was the purpose of this thesis. All events leading up to the conclusion in this thesis proves the existence of the Phillips curve in Sweden in the selected time-series. The findings of clockwise loops in the Phillips curve also strengthened the theory that the Phillips curve stands for regarding the causation. According to Phillips (1958) who argued that the causation goes from unemployment to inflation, that is, from point A to B to C in figure 1, and not the other way around as Lucas argued for, that the causation goes from inflation to unemployment, that is, from point A to C to B in figure 1.

With these results, this thesis contributes to research of the Phillips curves regarding monetary policy in Sweden. However, it is vital that forecasting tools used in

decision-making are constantly questioned and tested again because that the use of incorrect forecasting tools is likely to have negative consequences for the economy.

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8. Litterature

- Carlgren, Fredrik. 2020. Reporäntan.

https://www.ekonomifakta.se/fakta/ekonomi/finansiell-utveckling/styrrantan/​ (accessed 25 may 2020) - Chappelow, Jim. Barnier, Brian. 2020. Phillips curve.

https://www.investopedia.com/terms/p/phillipscurve.asp​ (accessed 25 may 2020).

- Corry, Bernard and Laidler, David. “The Phillips Relation: A Theoretical Explanation,” Economica, May 1967, 34, pp. 189-97.

- Dick-Mireaux, L. A. and Dow, J. C. R. “The Determinants of Wage Inflation : United Kingdom, 1946-1956,” J. Royal Statist. Society, Series A, Part II, 1959, 122, pp. 145-74

- Fisher, Irving. “A Statistical Relation between Unemployment and Price Changes,” Int. Lab. Rev., June 1926, 13(6), pp. 185-92; reprinted in J. Polit. Econ., Part I, March/April 1973, 81(2), pp. 496-502 - Friedman, M. (1968). The role of monetary policy. American economic review 58, 1-17.

- Gordon, J, ​Robert​. ​FRIEDMAN AND PHELPS ON THE PHILLIPS CURVE VIEWED FROM A HALF CENTURY'S PERSPECTIVE​, NBER working papers, 2018, p. 1.

- Gordon, J, ​Robert​. ​FRIEDMAN AND PHELPS ON THE PHILLIPS CURVE VIEWED FROM A HALF CENTURY'S PERSPECTIVE​, NBER working papers, 2018, p. 4.

https://www.elgaronline.com/view/journals/roke/6-4/roke.2018.04.03.xml?rskey=MCXyJm&result=2 (accessed 25 may 2020).

- Gottfries, N. (2013). Macroeconomics, Basingstoke: Palgrave Macmillan. - Inflation.eu. 2020. Inflation Sweden 2014.

https://www.inflation.eu/inflation-rates/sweden/historic-inflation/cpi-inflation-sweden-2014.aspx (accessed 25 may 2020).

- Jonung, Lars & Wadensjö, Eskil . ​The Swedish Phillips Curve​, Skandinaviska Enskilda Banken, 1980. Första stycket sida 39.

- Kantar Sifo Prospera 2019. Penningpolitik rapport.

https://www.riksbank.se/globalassets/media/rapporter/ppr/fordjupningar/svenska/2019/inflationsforvant ningar-i-sverige-nara-2-procent-fordjupning-i-penningpolitisk-rapport-september-2019.pdf​ (accessed 25 may 2020).

- Kantar Sifo Prospera 2020. Inflation expectations.

https://www.kantarsifo.se/erbjudande/prospera/inflation-expectations​ (accessed 25 may 2020). - Karlsson, S. & Österholm, P. (2018). Is the US Phillips curve stable? Evidence from Bayesian VARs.

(Working paper No. 2018:5). School of business, Örebro university.

- Khazri Afifa. ​“Rational Expectations And The Lucas Critique”​ (Lecture Notes, Queen’s University ECON 320, 2005).

http://qed.econ.queensu.ca/pub/faculty/khazri/econ320/Rational%20expectation%20and%20the%20Lu cas%20critique.pdf​ (accessed 25 may 2020).

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- Klein, Lawrence R. and Ball, Robert J., “Some Econometrics of the Determination of Absolute Prices and Wages,” Econ. J., Sept. 1959, 69, pp. 465-82.

- Konjunkturinstitutet 2009. Långsiktiga inflationsförväntning.

https://www.konj.se/download/18.2544ece314f85d591d5cbaa9/1441354747479/Langsiktiga-inflationsf orvantningar.pdf​ (accessed 25 may 2020).

- Lipsey, Richard G. “the Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862-1957: A Further Analysis, “ Economica, Deb. 1960 27, pp. 456-87. - Lucas, Robert E., Jr. (1972). “Expectations and the Neutrality of Money,” Journal of Economic Theory

4 (April), pp. 103-24.

- Lucas, R. (1976). Econometric policy evaluation: a critique. I Brunner, K. & Meltzer, A. H. (red.) The Phillips curve and labor markets. North Holland Pub. Co, 19-46.

- Mankiw, N. Gregory, ​Macroeconomics​, New York: Worth Publishers, 9th ed. 2016. - Mankiw, N, Gregory. 2019. Yes, There is a trade-off between inflation and unemployment.

https://www.nytimes.com/2019/08/09/business/trade-inflation-unemployment-phillips.html​ (accessed 25 may 2020).

- Nolen, L, Jeannette. “​Robert E. Lucas, Jr. AMERICAN ECONOMIST​” ​ENCYCLOPÆDIA

BRITANNICA​, Apr 27, 2010. ​https://www.britannica.com/biography/Robert-E-Lucas-Jr#ref212291 (accessed 25 may 2020).

- Phelps, E. S. (1967). Phillips curves, expectations of inflation and optimal unemployment over time. Economica 34, 254-281.

- Phillips, A.W. (1958). The relationship between unemployment and the rate of change of money wage rates in the United Kingdom, 1861-1957. Economica 25, 258-299.

- SCB 2017. Så mäter SCB inflation - skillnaden mellan KPI, KPIF och HIKP.

https://www.scb.se/hitta-statistik/artiklar/2017/Sa-mater-SCB-inflation--skillnaden-mellan-KPI-KPIF-o ch-HIKP/​ (accessed 25 may 2020).

- SCB 2020. Arbetslöshet i Sverige.

https://www.scb.se/hitta-statistik/sverige-i-siffror/samhallets-ekonomi/arbetsloshet-i-sverige/​ (accessed 25 may 2020).

- SCB 2020. Priserna i Sverige. ​https://scb.se/hitta-statistik/sverige-i-siffror/samhallets-ekonomi/kpi/ (accessed 25 may 2020).

- Studenmund, A, H. Using Econometrics: A Practical Guide (7th Edition), 2016.

- Svensson, L. E O. (2015). The possible unemployment cost of average inflation below a credible target. American economic journal: macroeconomics, 7, 258–296.

- Sveriges Riksbank (2018a). Inflationsmålet. Riksbanken.

https://www.riksbank.se/sv/penningpolitik/inflationsmalet/​ (accessed 25 may 2020). - Sveriges Riksbank (2018b). Phillipskurvan och penningpolitiken (Rapport 2018:7).

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- Sveriges Riksbanks 2018c. History of the inflation traget

https://www.riksbank.se/en-gb/monetary-policy/the-inflation-target/history-of-the-inflation-target/ (accessed 25 may 2020).

- Sveriges Riksbank 2018d. Vad är inflation

https://www.riksbank.se/sv/penningpolitik/inflationsmalet/vad-ar-inflation/​ (accessed 25 may 2020). - Sveriges Riksbank 2018e. How is inflation measured

.​https://www.riksbank.se/en-gb/monetary-policy/the-inflation-target/how-is-inflation-measured/ (accessed 25 may 2020).

- Sveriges Riksbank 2018. The Phillips curve and monetary policy.

https://www.riksbank.se/globalassets/media/rapporter/ppr/fordjupningar/engelska/2018/the-phillips-cur ve-and-monetary-policy-article-in-monetary-policy-report-july-2018.pdf​ (accessed 25 may 2020). - Vanderkamp, John. “The Phillips Relation: A Theoretical Explanation--A Comment,” Economica, May

1968, 35, pp. 179-83.

- Yellen, J. (2012). Perspectives on monetary policy. Massachusetts, 6 juni 2012.

https://www.federalreserve.gov/newsevents/speech/yellen20120606a.htm​ (accessed 25 may 2020). - Yellen, J. (2015). Inflation dynamics and monetary policy. Massachusetts, 24 september 2015.

https://www.federalreserve.gov/newsevents/speech/yellen20150924a.htm​ (accessed 25 may 2020).

8.1. Data links:

Inflation expectations 2000-2019

- https://www.kantarsifo.se/erbjudande/prospera/inflation-expectations​ (accessed 25th may 2020). Inflation expectations 1996-1999, source for trading economics

- https://www.konj.se/statistik-och-data.html​ (accessed 25th may 2020). Unemployment 1996-2019

- http://www.statistikdatabasen.scb.se/pxweb/sv/ssd/START__AM__AM0401__AM0401A/NAKUBefo lkning2Ar/table/tableViewLayout1/​ (accessed 25th may 2020).

Inflation 1996-2019

- https://scb.se/hitta-statistik/statistik-efter-amne/priser-och-konsumtion/konsumentprisindex/konsument prisindex-kpi/pong/tabell-och-diagram/konsumentprisindex-kpi/inflation-i-sverige/​ (accessed 25th may 2020).

Inflation expectations 1996-2019

- Sweden Inflation Rate | 1980-2020 Data | 2021-2022 Forecast | Calendar | Historical​​(accessed 25th may 2020).

References

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