3  The relationship estimated is: Change in unemploymentt = a + b0*(GDP growth)t + b1*(GDP growth)t-1 + b2*(GDP growth)t-2+ q*(Change in unemployment)t-1. εt . 4  IMF World Economic Outlook, April 2010. 2  BIS Review 58/2010  Studies have shown that unemployment may suffer long-lasting effects from a deep recession. This is partly because a person who has been unemployed for a long time loses part of his or her human capital and therefore becomes less attractive in the labour market, and partly because some people, after job-seeking for a long time, quite simply give up and leave the labour force. What is usually referred to as structural or “natural” unemployment may thus increase during periods of high and protracted unemployment. Labour market policy can counteract these effects to some extent, by for instance, offering further education and retraining to the unemployed. The situation today is in contrast to what we saw during the crisis in the 1990s. Then, GDP fell for three years and the fall in employment was greater than the fall in GDP. That crisis was domestically-generated and it was generally known that tough times lay ahead, as public finances were to be consolidated. This time, the crisis has come from outside and there has been scope for forceful fiscal policy and monetary policy measures. It is always difficult to make forecasts. Moreover, I believe it is more difficult than normal in the current situation.
Periods of low productivity are normally followed by periods when productivity recovers quickly. The labour market and current monetary policy Last week the Executive Board of the Riksbank decided to hold the repo rate unchanged at 0.25 per cent. But at the same time we made it clear that the time for a repo rate increase was not too far off. This could come in the summer or the early autumn. But even with the increases in the repo rate included in our repo rate path, monetary policy will be expansionary for a long period of time. The real repo rate is negative throughout the whole year, and will be below one per cent for the whole of 2011. The underlying CPIF inflation rate, that is, the CPI excluding the effect of changes in mortgage rates, is now relatively high at 2.5 per cent. But our assessment is that inflation will begin to fall, partly as a result of a stronger krona. In addition, slowly rising wages and increasing productivity growth will together mean that companies can produce goods at low cost. As economic activity strengthens the inflation rate will be pushed up and when we look ahead to the end of the forecast period it is close to 2 per cent. The forecast for the CPIF is therefore only marginally changed, compared with the assessment in the February Monetary Policy Report. Resource utilisation is an important variable for monetary policy as it is, for instance, an important indicator of future inflationary pressures.