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

Christopher Erceg and Andrew Levin ()

No 2013/245, IMF Working Papers from International Monetary Fund

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 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.

Keywords: WP; monetary policy; labor force participation; unemployment; monetary policy rules; participation gap; employment gap; labor market; BLS labor force projection; demand shock; labor force participant; vs.the employment gap; proportionality factor; unemployment rate gap; gap vs.the employment gap; participation gap coefficient; unemployment gap; Unemployment rate; Labor force; Labor markets (search for similar items in EconPapers)
Pages: 60
Date: 2013-12-16
References: Add references at CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=41133 (application/pdf)

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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/245

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().