GDP in Sweden Annual percentage change 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2  -3  -3  -4  -4  -5  -5 -6  -6 00  01  02  03  04  05  Note. Broken columns represent the Riksbank’s forecasts. BIS Review 98/2009  06  07  08  09  10  11  Sources: Statistics Sweden and the Riksbank  13  13. Survey indicator Index 120  120  Survey indicator Meanvalue +/ - one standard deviation  115  115  110  110  105  105  100  100  95  95  90  90  85  85  80  80  75  75 70  70 00  01  02  03  04  05  06  07  08  09  10  Source: National Institute of Economic Research (NIER)  14.
The idea is that if the economy is hit by a shock which requires real wages to fall (like a negative productivity shock), this can happen through either (a) keeping prices fixed (i.e. zero inflation) and cutting money wages, or (b) fixing money wages and increasing the price level (i.e. positive inflation). The first path may involve significant unemployment when money wages are downwardly rigid. The second, by contrast, may deliver the same reduction in the real wages at a unemployment lower cost. See also e.g. Kim, J and F Ruge-Murcia (2009), “How much inflation is necessary to grease the wheels?”, Journal of Monetary Economics, 56. 5  Retail sales grew by 2.3% in the three months to January, the fastest since April 2002. Consumer confidence in the general economic situation is currently over 1 standard deviation above its historical mean and from mid-2014 has been around its highest level since May 1998. 6  More broadly, the evidence for consumption delay is not compelling. Bachmann et al (2015) find for the US that a one percentage point increase in expected inflation during the recent zero lower bound period reduces households’ probability of having a positive attitude towards spending by about 0.5 percentage points. Hori and Shimizutani (2005) find some evidence of lower price expectations being correlated with consumption delay in Japan, but the effects do not look large. Finally, consumption delay is less compelling for households who are financially constrained and whose consumption varies more strongly with current income.