Phillips curve and Monetary Policy

Sammanfattning: In this study, an expectations-augmented model of the Phillips curve will be provided for the Swedish market during the period 1997-2011. This will be done for four different measures of the expectation gap. These four measures were acquired by pairing up two measures of inflation (CPI and CPIF) with two measures of inflation expectations (that of the firms and that of employee/employer organisations). The method utilized for this evaluation has been the prediction error method (PEM). Moreover, in order to evaluate the long-term nature of the Phillips curve, different bootstrap methods have been used to provide information regarding the expectation gap in the long run. The overwhelming weight of the results, show that the expectation gap is zeros, and that the long-term Phillips curve is vertical.