Monetary Policy and the Labor Market: A Quasi-Experiment in Sweden

62 Pages Posted: 13 Sep 2023

See all articles by John M. Coglianese

John M. Coglianese

Board of Governors of the Federal Reserve System

Maria Olsson

BI Norwegian Business School

Christina Patterson

University of Chicago

Date Written: September 11, 2023

Abstract

We analyze a monetary quasi-experiment in Sweden from 2010–2011, when the Riksbank raised the interest rate substantially. We argue that this increase was unrelated to labor market conditions, driven instead by new concerns at the Riksbank about financial stability. Using a battery of specifications that rule out domestic or international confounders, we show that this monetary tightening led to a substantial economic contraction, raising unemployment by 1–2 percentage points. Using administrative micro data, we find that nominal wage rigidity drove much of the unemployment response and that the monetary contraction was more regressive than the typical business cycle.

Keywords: Monetary Policy, Labor Markets, Quasi-Experiment

JEL Classification: E24, E52, E58

Suggested Citation

Coglianese, John M. and Olsson, Maria and Patterson, Christina, Monetary Policy and the Labor Market: A Quasi-Experiment in Sweden (September 11, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-123, Available at SSRN: https://ssrn.com/abstract=4569516 or http://dx.doi.org/10.2139/ssrn.4569516

John M. Coglianese

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/john-m-coglianese.htm

Maria Olsson

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Christina Patterson (Contact Author)

University of Chicago ( email )

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