Logo: to the web site of Uppsala University

This thesis investigates how employment in Sweden’s 21 regions, län, react to monetary policy shocks between 2005Q2 and 2024Q2. Using target shocks (surprises to the policy rate) and path shocks (surprises to the expected future policy path), both identified via high-frequency identification (HFI) and used as external instruments in local projection (LP-IV) regressions, I find that target shocks produce quicker but smaller effects, whereas path shocks generate larger and more persistent impacts. Further, there is substantial regional heterogeneity: at the peak effect window, employment responses range from -2.87% to +0.71% across regions for target shocks, and from -3.35% to +2.11% for path shocks.

To explain this variation, I construct five structural indices, capturing credit-supply sensitivity, credit demand sensitivity, exchange-rate exposure, matching efficiency, and employment protection, from a wide set of 87 regional variables. These indices are interacted with monetary shocks in a panel LP-IV-FE model, complemented by cross-sectional OLS regressions. The analysis shows that on average over time, matching efficiency is the most robust and consistent predictor of regional vulnerability, with lower efficiency amplifying employment losses. Household credit sensitivity also increases losses from persistent shocks, while firm credit sensitivity and reliance on export play smaller roles. These findings indicate that regional labor-market frictions and household indebtedness, rather than firm or export-sector vulnerabilities, are key to understanding the uneven regional effects of monetary policy. Directed regionalpolicy efforts to improve matching efficiency and to reduce household debt in vulnerable regions might help mitigate unequal regional employment outcomes during monetary tightening.