Sveriges Riksbank has published a staff memo by Rachatar Nilavongse finding that adding variable labour utilisation and employment adjustment costs to its MAJA Dynamic Stochastic General Equilibrium model improves its ability to reproduce procyclical labour productivity. The extension also produces a more realistic relationship between unemployment and output following monetary policy shocks. The mechanism assumes that adjustment costs make firms slow to change employment, prompting them to vary how intensively they use existing workers. Swedish data indicate that a one percentage point contractionary monetary policy shock produces a peak decline in labour productivity of about 0.56%. The calibrated labour hoarding model generates a peak response of 0.68%, compared with 0.04% in the baseline model, while reducing the implied Okun coefficient to 0.94 from 1.67, closer to the empirical estimate of about 0.60. The estimated model similarly produces an Okun coefficient below one and a productivity response broadly aligned with the empirical evidence.
2026-09-07Riksbank
Sveriges Riksbank staff memo finds labour hoarding improves modelling of productivity and unemployment responses to monetary policy shocks
A Sveriges Riksbank staff memo finds that adding variable labour utilisation and employment adjustment costs to its MAJA model better captures procyclical labour productivity after monetary policy shocks. The labour hoarding extension also produces unemployment and output responses closer to empirical estimates than the baseline model.