Monetary policy and the labour market

This speech Irma Rosenburg, first deputy governor of the Swedish Riksbank, explores the relationship between monetary policy and the labour market.

"During the years 2004-2005 inflation was noticeably below the target", Rosenburg notes. "It may therefore be relevant to claim that the high unemployment is largely due to incorrectly balanced monetary policy."

Rosenburg proceeds to argue that inflation has undershot the central bank's inflation target in recent years, mainly due to unexpectedly high productivity growth. "The high productivity has been beneficial as it has contributed to good growth. However, it may at the same time explain why employment has shown relatively weak development for some years," Rosenburg suggests.

She insists that debates about the role of monetary policy in determining employment should be informed by reasonable expectations of what monetary policy can achieve.

She argues: "It is not because of monetary policy that unemployment now is much higher than it was in the decades immediately prior to the 1990s crisis."

Rather, she argues "there are many indications that the explanation for this is structural problems in the Swedish labour market. Problems that have increased over time and were long concealed by the unsustainably expansionary economic policy conducted earlier."

To read the whole speech, click here.