5  There are various measures of under-employment, including the proportion of the workforce working part-time involuntarily and the gap between actual and desired hours worked. In practice, these two measures exhibit a very similar pattern (Chart 9). They also track the unemployment rate closely. This suggests the incremental information contained in measures of under-employment, relative to measures of unemployment, might be relatively modest. Econometric estimates confirm that impression. Replacing the unemployment gap with a measure of the 6  under-employment gap produces a very similar wage equation (Table 1). And in a pairwise comparison, under-employment is statistically insignificant if the unemployment gap is included. Under-employment is important for pay, but does not appear to much improve the explanation of recent wage dynamics. A third factor determining pay pressures is productivity. It is through gains in productivity that individual firms, and the economy at large, can finance increases in workers’ pay. Econometric estimates confirm that intuition. The productivity of the labour force is a (statistically and economically) significant determinant of pay (Table 1). On average across firms, a 1 percentage point rise in productivity raises aggregate wage growth by around 0.8 percentage points. 4 5 6  Espinosa-Vega and Russell (1997) provide a history and review of the NAIRU concept. For example, Bell & Blanchflower (2018). Specifically, the involuntary part-time share of employment.
Moreover, the Riksbank contributed to slowing down the fall in production and employment when the financial crisis hit Sweden with full force in autumn 2008. Partly by quickly and forcefully cutting the repo rate, and partly by supplying around SEK 500 billion in liquidity to the banking system. I have in this speech discussed the uncertainty in monetary policy. As monetary policy acts with a lag, it must be based, at least partly, on forecasts. However, our forecasting ability with regard to GDP growth and inflation is very limited one year ahead and largely non-existent two and three years ahead. This is what I have called the Catch-22 of monetary policy. BIS central bankers’ speeches  9  We should therefore place greater emphasis on analysing the initial situation and making forecasts for the coming year. We should also concentrate on assessing the repo rate over the coming six months, as there is such great uncertainty over the repo rate in the longer run. The level of the repo rate should be checked against other monetary policy frameworks, such as the Taylor rule. And we should be clear about the objective of monetary policy. We should regard the forecasts for longer than one year ahead as potential scenarios rather than unbiased forecasts.