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

Christopher Erceg and Andrew Levin ()

Journal of Money, Credit and Banking, 2014, vol. 46, issue S2, 3-49

Abstract: This paper provides compelling evidence that cyclical factors account for the bulk of the post‐2007 decline in the U.S. labor force participation rate (LFPR). We then formulate a stylized New Keynesian model in which the LFPR is practically acyclical during “normal times” but drops markedly following a large and persistent aggregate demand shock. These considerations have potentially crucial implications for the design of monetary policy, especially when interest rate adjustments are constrained by the zero lower bound; specifically, monetary policy can induce a more rapid recovery of the LFPR by allowing the unemployment rate to fall below its natural rate.

Date: 2014
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http://hdl.handle.net/10.1111/jmcb.12151

Related works:
Working Paper: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013) Downloads
Working Paper: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013) Downloads
Working Paper: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:s2:p:3-49

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