Should Full Employment Be a
Mandate for Central Banks?
Eric S. Rosengren
President & CEO
Federal Reserve Bank of Boston
Federal Reserve Bank of Boston
Economic Conference
April 12, 2013
The data in this speech have been updated to reflect revisions to the data series that occurred after it was
delivered. These updates were made because the speech was being prepared for publication in an issue
of the Journal of Money, Credit, and Banking.
www.bostonfed.org
Figure 1
Price Level Path in Europe,
the United States and Japan
January 1993 - February 2013
Index Level January 1993 = 100
160
Euro Area Harmonized Index of Consumer Prices
U.S. Personal Consumption Expenditure (PCE) Price Index
140
Japan's Consumer Price Index
2% Annual Inflation
120
100
80
Jan-1993
Jan-1997
Jan-2001
Jan-2005
Jan-2009
Source: Eurostat, BEA, Japan’s Ministry of Internal Affairs and Communications / Haver Analytics
Jan-2013
Figure 2
Price Level Path in Sweden,
the United Kingdom and the United States
January 1993 - February 2013
Index Level January 1993 = 100
160
U.K. Harmonized Index of Consumer Prices
U.S. Personal Consumption Expenditure (PCE) Price Index
140
Sweden's CPIX
2% Annual Inflation
120
100
80
Jan-1993
Jan-1997
Jan-2001
Jan-2005
Jan-2009
Jan-2013
Note: Sweden’s CPIX is the National CPI excluding mortgage interest and adjusted for taxes and subsidies.
Source: Sweden’s Statistiska Centralbyran, U.K. Office for National Statistics, BEA / Haver Analytics
Figure 3
Deviations from Inflation Target in Sweden, the
United Kingdom, the United States and the Euro Area
February 1997 - February 2013
Cumulative Squared Deviations from Inflation Target of 2%
20
Sweden
United Kingdom
United States
Euro Area
15
10
5
0
Feb-97
Feb-99
Feb-01
Feb-03
Feb-05
Feb-07
Feb-09
Feb-11
Feb-13
Uses year-over-year change in the CPIX (Sweden), HICP (U.K., E.A.) and the PCE price index (U.S.) to measure inflation.
Source: Sweden’s Statistiska Centralbyran, U.K. Office for National Statistics, BEA, Eurostat / Haver Analytics
Figure 4
Deviations from Core Inflation Target in Sweden, the
United Kingdom, the United States and the Euro Area
February 1997 - February 2013
Cumulative Squared Deviations from Core Inflation Target of 2%
20
Sweden
United Kingdom
United States
Euro Area
15
10
5
0
Feb-97
Feb-99
Feb-01
Feb-03
Feb-05
Feb-07
Feb-09
Feb-11
Feb-13
Uses year-over-year change in Core HICP (Sweden, U.K., E.A.) and Core PCE price index (U.S.) to measure inflation.
Source: BEA, Eurostat / Haver Analytics
Figure 5
Unemployment Rate versus Core Inflation Rate
Quarterly, 1997:Q1 - 2012:Q4
Core Inflation Rate
(Percent Change at Annual Rate)
Core Inflation Rate
(Percent Change at Annual Rate)
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
0
2
4
6
8
10
Unemployment Rate (Percent)
12
Core Inflation Rate
(Percent Change at Annual Rate)
0
2
4
6
8
10
Unemployment Rate (Percent)
12
Core Inflation Rate
(Percent Change at Annual Rate)
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
0
2
4
6
8
10
Unemployment Rate (Percent)
12
Source: Eurostat, BEA, BLS / Haver Analytics
0
2
4
6
8
10
Unemployment Rate (Percent)
Note: Most recent observation in red
12
Figure 5
Unemployment Rate versus Core Inflation Rate
Quarterly, 1997:Q1 - 2012:Q4
Core Inflation Rate
(Percent Change at Annual Rate)
5
Core Inflation Rate
(Percent Change at Annual Rate)
5
Sweden
4
United Kingdom
4
3
3
2
2
1
1
0
0
-1
-1
0
2
4
6
8
10
Unemployment Rate (Percent)
12
Core Inflation Rate
(Percent Change at Annual Rate)
5
2
4
6
8
10
Unemployment Rate (Percent)
12
Core Inflation Rate
(Percent Change at Annual Rate)
5
United States
4
0
Euro Area
4
3
3
2
2
1
1
0
0
-1
-1
0
2
4
6
8
10
Unemployment Rate (Percent)
12
Source: Eurostat, BEA, BLS / Haver Analytics
0
2
4
6
8
10
Unemployment Rate (Percent)
Note: Most recent observation in red
12
Figure 6
Central Bank Assets and Inflation: United States
January 2008 - February 2013
Percent Change from Year Earlier
3.5
Trillions of Dollars
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Core PCE Price Index (Left Scale)
0.5
0.5
Federal Reserve System Assets (Right Scale)
0.0
Jan-2008
0.0
Jan-2009
Jan-2010
Source: BEA, Federal Reserve Board / Haver Analytics
Jan-2011
Jan-2012
Jan-2013
Figure 7
Central Bank Assets and Inflation: United Kingdom
January 2008 - February 2013
Percent Change from Year Earlier
4.0
Billions of GBP
480
3.5
420
3.0
360
2.5
300
2.0
240
1.5
180
1.0
120
0.5
Harmonized Index of Core Consumer Prices (Left Scale)
60
Bank of England Assets (Right Scale)
0.0
Jan-2008
0
Jan-2009
Jan-2010
Source: Eurostat, Bank of England / Haver Analytics
Jan-2011
Jan-2012
Jan-2013
Figure 8
Central Bank Assets and Inflation: Euro Area
January 2008 - February 2013
Percent Change from Year Earlier
3.5
Trillions of Euros
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
Harmonized Index of Core Consumer Prices (Left Scale)
0.5
European Central Bank Assets (Right Scale)
0.0
Jan-2008
0.0
Jan-2009
Jan-2010
Jan-2011
Source: Eurostat, European Central Bank / Haver Analytics
Jan-2012
Jan-2013
Figure 9
Central Bank Assets and Inflation: Sweden
January 2008 - February 2013
Percent Change from Year Earlier
4.0
Billions of Kronor
800
3.5
700
3.0
600
2.5
500
2.0
400
1.5
300
1.0
200
0.5
Harmonized Index of Core Consumer Prices (Left Scale)
100
Riksbank Assets (Right Scale)
0.0
Jan-2008
0
Jan-2009
Jan-2010
Source: Eurostat, Riksbank / Haver Analytics
Jan-2011
Jan-2012
Jan-2013
Figure 10
Deviations from Full Employment and Core
Inflation Targets in the United States
1960:Q1 - 2012:Q4
Squared Deviations from Core Inflation Target
60
Core Inflation
40
20
0
1960:Q1
1968:Q1
1976:Q1
1984:Q1
1992:Q1
2000:Q1
2008:Q1
1984:Q1
1992:Q1
2000:Q1
2008:Q1
Squared Deviations from Full Employment Target
60
Unemployment
40
20
0
1960:Q1
1968:Q1
1976:Q1
Note: Full employment is the CBO estimate of the natural rate of unemployment. Inflation target is 2% in recent
periods but ranges from 2% to 5% prior to mid 2005 based on a filter employed to provide smoothed estimates.
Source: BEA, BLS, CBO / Haver Analytics
Figure 11
Stacked Deviations from Full Employment and
Core Inflation Targets in the United States
1960:Q1 - 2012:Q4
Sum of Squared Deviations from Full Employment and Core Inflation Targets
60
50
Unemployment
Core Inflation
40
30
20
10
0
1960:Q1
1968:Q1
1976:Q1
1984:Q1
1992:Q1
2000:Q1
2008:Q1
Note: Full employment is the CBO estimate of the natural rate of unemployment. Inflation target is 2% in recent
periods but ranges from 2% to 5% prior to mid 2005 based on a filter employed to provide smoothed estimates.
Source: BEA, BLS, CBO / Haver Analytics