Wickman-Parak: Monetary policy and unemployment – a constantly topical debate
On Tuesday, Deputy Governor Barbro Wickman-Parak made a speech to the Swedish Trade Union Confederation (LO) in which she presented her view of resource utilisation, specifically the so-called unemployment gap, and its role in monetary policy decision-making.
Ms Wickman-Parak observed that she is doubtful about placing too much importance on the unemployment gap when taking monetary policy decisions. She does not think one should appoint a specific measure of resource utilisation as the sole measure to which monetary policy should adapt. "To reduce the risk of going seriously wrong with monetary policy, I consider it important not to place any blind faith in the exactness of the gap measures we use", said Ms Wickman-Parak,
She considered that the Riksbank should continue to use several different measures to capture resource utilisation in the economy. According to Ms Wickman-Parak, survey-based measures of resource utilisation such as capacity utilisation in the manufacturing industry and labour market shortages, as well as indicators from the traditional labour market statistics are at least as important as the various estimated gap measures. The labour supply holds a central position among these indicators. At this point, Ms Wickman-Parak pointed out that it is important to not just see the labour supply as a homogenous aggregate. Instead, the labour supply should be analysed on the assumption that it consists of a heterogeneous collection of individuals. This provides better guidance with regard to the scope of monetary policy.
Read the whole speech in the PDF file below.
