Klas Fregert

Inflation Targeting is a Success, so Far: 100 Years of Evidence from Swedish Wage Contracts

We evaluate the Swedish inflation targeting regime adopted in 1993−1995 using a novel approach based on a unique data set on the characteristics of collective wage agreements between 1908 and 2008. We find that the inflation targeting regime of 1995−2008 stands out as an exceptionally stable policy regime as judged by the willingness of wage contract-makers to repeatedly commit to three-year non-indexed wage agreements. Inflation targeting gained instant credibility in the sense that the labor market organizations entered long-term wage agreements at the same time as this new regime was announced. Inflation targeting has thus reduced macroeconomic uncertainty compared to previous regimes adopted in Sweden, including the gold standard before and after World War I, the price level targeting of the 1930s, the Bretton Woods period of fixed exchange rates. As judged by the reactions of the labor market participants, inflation targeting in Sweden is a success―at least so far.

Fiscal statistics for Sweden 1719-2003

We construct yearly fiscal series for Sweden between 1719 and 2003 including expenditures, revenues, deficits and debt. We present measures for the fiscal branch of the central government as well as for the consolidated fiscal and monetary branch, which includes seigniorage. We evaluate the reliability and consistency of the series by calculating the difference between budget deficits and the change in debt to test if the differences are serially uncorrelated around zero, which we confirm.

Relative Wage Struggles in the Interwar Period, General Equilibrium and the Rise of the Swedish Model

Abstract I analyze the origins of two central features of the Swedish labor market: wage bargaining centralization and wage equalization. I focus on the campaign for wage equalization by workers in the traded goods sector during the interwar period which resulted in a change in the statutes ofthe Swedish Trade Union Federation (LO) in 1941 with more powers to LO. The workers in the traded goods sector suffered a wage decline relative to the non-traded goods sector in the early 1920s which lasted the interwar period. They argued that they paid the higher wages in the non-traded goods sector through higher prices for non-traded goods. A two-sector general equilibrium model is used to evaluate this claim which is found to be robust. Centralization and wage equalization may thus be explained by self-interest rather than ideology or envy. The high wage in the non-traded sector can be seen as creating a negative externality on other groups. Wage equalization through centralization arose as an institutional resp...

The Great Depression in Sweden as a wage coordination failure

Recent research on the Great Depression has concluded that a worldwide decline in aggregate demand, emanating from the United States, was propagated into a fall in real activity through sticky nominal wages. The question remains: Why were nominal wages so sticky? Based on a wide range of evidence for Sweden, I argue that the 1930s depression is compatible with a coordination failure in wage setting, as first suggested by Keynes.

Belling the Cat: Eli F. Heckscher on the Gold Standard as a Discipline Device

Unlike Knut Wicksell, Eli Heckscher did not believe the time had arrived for “managed money” to replace the gold standard after World War I. The war had shown that only a gold standard could bind the central bank to a time-consistent policy with reasonable price stability. Heckscher likened the problem of reinstating the gold standard to “Belling the cat” in Aesop’s fable. When the international gold standard crumbled in the Great Depression, he supported the Swedish price stabilization regime as a temporary system. Heckscher was an early discoverer of the time-consistency problem in monetary policy and hence stressed the importance of the institutional framework of monetary policy.

A long-run estimator of the slope of the aggregate demand curve

Abstract A simple estimator for the slope of the aggregate demand schedule is suggested and estimated for 12 countries. The estimator is consistent under standard assumptions, but may require long time series if demand shocks have long-lived effects.

The Choice between State- and Time-Dependent Price Rules

Large review costs lead to time-dependent price setting rules. State-dependent rules become more likely when there is an increase in: set-up costs, the variability of the equilibrium price or the efficiency loss associated with being away from equilibrium.