European Parliament Library

Labor Force Participation and Monetary Policy in the Wake of the Great Recession, Christopher Erceg, Andrew Levin

In this paper, we provide compelling evidence that cyclical factors account for the bulk of the post-2007 decline in the U.S. labor force participation rate. We then proceed to formulate a stylized New Keynesian model in which labor force participation is essentially acyclical during “normal times” (that is, in response to small or transitory shocks) but drops markedly in the wake of a large and persistent aggregate demand shock. Finally, we show that these considerations can have potentially crucial implications for the design of monetary policy, especially under circumstances in which adjustments to the short-term interest rate are constrained by the zero lower bound
Table Of Contents
Cover; Labor Force Participation and Monetary Policy in the Wake of the Great Recession; 1. Introduction; 2. Empirical Analysis; 2.1. Labor Force Participation during ""Normal Times""; 2.2. Labor Force Participation Since the Great Recession; 2.3. Distinguishing the Role of Cyclical vs. Structural Factors; 2.4. Gauging the Potential for Hysteresis; 2.5. Assessing the Employment Gap; 3. A New Keynesian Model with Labor Force Participation; 3.1. Households; 3.2. Firms; 3.3. Log-Linearized Model; 3.4. Calibration; 3.5. The Dynamics of the LFPR; 4. The Design of Monetary Policy Rules
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (61 p.)
Specific Material Designation
Form Of Item

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