It is possible to assess these things with the aid of the so-called four-panel figures that I usually refer to at the monetary policy meetings, and which are included in the minutes of the meetings. These figures are central to monetary policy, as they make it possible to compare different repo-rate paths and to see what level of target fulfilment for inflation and unemployment they result in. I consider these figures very useful when choosing a repo-rate path, when justifying the choice of the repo-rate path and when evaluating monetary policy. In Figure 1 I summarise some possible policy choices at the monetary policy meeting in April. The figure is based on the assessment of the current situation and the economic outlook presented in the Monetary Policy Update (Sveriges Riksbank 2012c). 5 The figures show clearly that a lower repo-rate path entails better target fulfilment, with inflation closer to the target and unemployment closer to a long-run sustainable rate. At the monetary policy meeting in April I considered that the forecast for foreign policy rates presented in the Update was too high, and that a much lower forecast in line with implied forward rates was more realistic. I also considered that the forecast for euro area growth was too optimistic. As I illustrated with a further figure at the meeting, an even lower repo-rate path would then be needed to best stabilise inflation and unemployment.
This deviation gives an average unemployment rate of 7.3 per cent. The left-hand square corresponds to an average inflation that is on target, at 2 per cent, which gives an average unemployment rate of 6.5 per cent. The difference between these figures is thus 0.8 percentage points. For Sweden it thus appears that an average inflation rate 0.6 percentage points below the target has led to an 0.8 percentage points higher average unemployment rate over the past 15 years than would have been the case if average inflation has been on target. 16 This estimate appears fairly robust for various assumptions. If one, for example, uses CPIX and CPIF inflation (which on average have undershot the target by less than the CPI inflation) the estimated long-run Phillips curve becomes somewhat flatter and gives roughly the same increased average unemployment. The fact that average unemployment that is compatible with average inflation on target is so much lower than actual average unemployment also indicates that estimates of the long-run sustainable unemployment based on historical averages may have a significant upward bias. 16  A 95-per cent confidence interval for the increased average unemployment is limited by 0.8 ± 0.3 percentage points and thus lies between 0.5 and 1.1 percentage points. Alternative assumptions and sample periods give roughly the same or a larger increase in average unemployment. For details, see Svensson (2012).