policy in terms of unemployment is high, both in a short and long - run perspective. in practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. according to extensive theoretical and empirical research, monetary policy normally has little effect in the short run on housing prices and household indebtedness, compared with its effects on inflation and unemployment, and when inflation is low and stable, it has no longrun effects on housing prices and indebtedness. a tight monetary policy aimed at limiting household indebtedness then leads to inflation being too low and unemployment too high, without having a tangible effect on potential risks arising from household indebtedness. monetary policy should therefore not be used to try to influence housing prices and indebtedness. against this background, it is remarkable that monetary policy in sweden nevertheless appears to have been aimed at influencing household indebtedness in the short and long run, resulting in large costs to the real economy, despite the lack of support for this stance in both scientific research and previous experience. monetary policy should aim to stabilise inflation around the target and unemployment around a long - run sustainable rate. it should also be aimed at keeping inflation around the target on average over a longer period of time, to avoid repeating the policy than has led to unnecessarily high unemployment since 1997. the long - run sustainable rate of unemployment depends on the way the labour market functions and on structural conditions, and it must be estimated using empirical methods. these estimates should take into account bis central bankers ’ speeches the fact that average inflation has been lower than the average inflation expectations since 1997, to avoid a bias in estimating the long - run sustainable rate of unemployment. the problems with poorer matching, increasing long - term unemployment and a larger share of vulnerable groups on the labour market are arguments in favour of a more, not less, expansionary monetary policy so that we can bring down the high unemployment to a longrun sustainable rate. at present, when unemployment has been high over a long period of time, we need a particularly expansionary monetary policy, a large demand for labour and an inflation rate that is temporarily allowed to overshoot the target to bring down unemployment. as inflation on average has fallen below the target, an inflation rate above the target would at present also have the advantage that average inflation over a long period would come closer to the target, something that would contribute to avoiding the unneces

depends on the low mortgage rate after tax – and thus, at a given loan - to - value ratio, not the debt ratio either. see assenmacher - wesche and gerlach ( 2010 ), claussen, jonsson and lagerwall ( 2011 ) and kuttner for similar results regarding the impact of monetary policy on housing prices. bis central bankers ’ speeches actual inflation and thus fall if the rate of inflation falls. the long - run phillips curve, which illustrates the relationship between average inflation measured along the vertical axis and average unemployment measured along the horizontal axis, then becomes vertical and average unemployment thus becomes independent of the average rate of inflation. we can see this in figure 6, which shows unemployment along the horizontal axis and cpi inflation along the vertical axis for the years 1976 – 2012. we can see that during the 1970s and 1980s, there was no systematic relationship between inflation and unemployment. the long - run phillips curve, the long - run relationship between inflation and unemployment, could be said to be vertical. when inflation expectations are anchored, inflation and unemployment are interlinked however, from 1998 and onwards things look different ( the red observations in figure 6 ). when inflation expectations are anchored to the target but inflation varies, a systematic trade - off arises between inflation and unemployment. the black line shows an estimated long - run phillips curve for the period, a curve that is not vertical but sloping. the estimated slope is 0. 75. 10 this means that a one per cent higher average rate of unemployment is associated with a 0. 75 per cent lower average rate of inflation. this in turn means that a 0. 6 percentage points lower rate of inflation than the target from 1997 entails a 0. 6 / 0. 75 = 0. 8 percentage points higher average rate of unemployment. the average number of people in the labour force over the past 15 years has been about 4. 7 million. 0. 8 per cent of 4. 7 million is about 38 000. we can thus say that the cost in terms of unemployment of the fact that the average rate of inflation has fallen below the target is approximately 38, 000 unemployed. 11 as explained in my paper ( svensson 2012d ) the sloping long - run phillips curve is arguably relevant only when the average rate of inflation deviates moderately from inflation expectations and the target ( for example deviations less than plus / minus one percentage point ). in the case of larger average deviations it is likely that inflation expectations will