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

Author/Editor:

Christopher J. Erceg ; Andrew Levin

Publication Date:

December 16, 2013

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 13/245

Subject:

English

Publication Date:

December 16, 2013

ISBN/ISSN:

9781484301456/1018-5941

Stock No:

WPIEA2013245

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

60

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