The fact that inflation has been lower than inflation expectations means that the longrun sustainable rate of unemployment may have been overestimated The Riksbank (2012a) presents a briefer estimate of long-run sustainable unemployment in the form of the interval 5–7.5 per cent, thus with a midpoint of 6.25 per cent. Long-run sustainable unemployment is calculated in two stages, as by the Ministry of Finance (2011). In the first stage, long-run sustainable unemployment in 2006 is estimated in the form of the interval 6.5–7.5 per cent, that is, with a midpoint of 7 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 6.6 per cent). The second stage entails estimating the effect of government reforms and changes in the composition of the labour force on long–run sustainable unemployment since 2006, in the form of an interval of 0 to 1.5 percentage points, that is, with a midpoint of 0.75 percentage points (to be compared with the Ministry of Finance’s corresponding estimate of 1.6 percentage points). When this interval is deducted from the first one, we get an interval of 5–7.5 per cent, with a midpoint of 6.25 per cent (to be compared with the Ministry of Finance’s corresponding estimate of 5 per cent). The Riksbank uses as a base in the first stage the average rate of unemployment during the period 1999–2006, that is, about 7 per cent, which is then made into a midpoint in the estimated interval of 6–7.5 per cent.

11 No 1, 73–92. SFS 1988:1385, Sveriges Riksbank Act in its wording as of 1 July 2011, Sveriges Riksdag (the Swedish parliament). Statistics Sweden (2012), Housing and construction statistics yearbook 2012, table. Svensson, Lars E.O. (2010), “Why a lower repo-rate path?” speech in Umeå, 24 February 2012, www.larseosvensson.net . 10  BIS central bankers’ speeches  Svensson, Lars E.O. (2011), “Practical monetary policy: Examples from Sweden and the United States”, Brookings Papers on Economic Activity, Fall 2011, 289–332. Svensson, Lars E.O. (2012a), “Adjustment of the Riksbank’s estimate of long-run sustainable rate of unemployment”, annex to Sveriges Riksbank (2012b), www.larseosvensson.net. Svensson, Lars E.O. (2012b), “Different views on monetary policy”, speech in Stockholm 8 June 2012, www.larseosvensson.net. Svensson, Lars E.O. (2012c), “Monetary policy, debt and unemployment”, speech in Stockholm 14 November 2012, www.larseosvensson.net. Svensson, Lars E.O. (2012d), “The possible unemployment cost of average inflation below a credible target”, working paper, www.larseosvensson.net. Swedish government (1997), Riksbankens ställning (the position of the Riksbank), government bill 1997/98:40, www.regeringen.se. Sveriges Riksbank (2011), The Riksbank’s inquiry into risks in the Swedish housing market, www.riksbank.se. Sveriges Riksbank (2012a), “Long-run developments in the Swedish labour market”, article in Monetary Policy Report, July 2012, www.riksbank.se. Sveriges Riksbank (2012b), “Minutes of the monetary policy meeting no. 3”, 3 July 2012, www.riksbank.se. Sveriges Riksbank (2012c), “Minutes of the monetary policy meeting no. 5”, 24 October 2012, www.riksbank.se. Sveriges Riksbank (2012d), “Minutes of the monetary policy meeting no. 6”, 17 December 2012, www.riksbank.se. BIS central bankers’ speeches  11  Figure 1.