Labor Force Participation and Monetary Policy in the Wake of the Great Recession
AbstractIn 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.
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Bibliographic InfoPaper provided by University of Tokyo, Graduate School of Economics in its series UTokyo Price Project Working Paper Series with number 009.
Length: 53 pages
Date of creation: Jun 2013
Date of revision:
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Postal: University of Tokyo 702 Faculty of Economics, The University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, 113-0033, Japan
Web page: http://www.e.u-tokyo.ac.jp/
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Other versions of this item:
- Christopher J. Erceg & Andrew Levin, 2013. "Labor Force Participation and Monetary Policy in the Wake of the Great Recession," IMF Working Papers 13/245, International Monetary Fund.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Avichai Snir & Daniel Levy, 2011.
"Shrinking Goods and Sticky Prices: Theory and Evidence,"
Working Paper Series
17_11, The Rimini Centre for Economic Analysis.
- Snir, Avichai & Levy, Daniel, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," MPRA Paper 29565, University Library of Munich, Germany.
- Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Emory Economics 1104, Department of Economics, Emory University (Atlanta).
- Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Papers 2011-03, Department of Economics, Bar-Ilan University.
- Dave Reifschneider & William Wascher & David Wilcox, 2013. "Aggregate supply in the United States: recent developments and implications for the conduct of monetary policy," Finance and Economics Discussion Series 2013-77, Board of Governors of the Federal Reserve System (U.S.).
- Leila Bengali & Mary Daly & Rob Valletta, 2013. "Will labor force participation bounce back?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may13.
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