Labor Force Participation and Monetary Policy in the Wake of the Great Recession

Christopher Erceg and Andrew Levin ()

No 9, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: 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 pro- ceed 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 im- plications 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.

Pages: 53 pages
Date: 2013-06
New Economics Papers: this item is included in nep-hme
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Citations: View citations in EconPapers (60)

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Related works:
Journal Article: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2014)
Working Paper: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013)
Working Paper: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013)
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