IMF Working Papers Volume 2013 Issue 245: Labor Force Participation and Monetary Policy in the Wake of the Great Recession (2013)

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

Author: Christopher J. Erceg and Mr. Andrew Levin

Series:: IMF Working Papers

Volume/Issue:: Volume 2013: Issue 245

Publication Date:: 16 Dec 2013

DOI:: https://doi.org/10.5089/9781484301456.001

ISBN:: 9781484301456

ISSN:: 1018-5941

Pages:: 60

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

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2013: Issue 245

Language:: English

Publication Date:: 16 Dec 2013

DOI:: https://doi.org/10.5089/9781484301456.001

ISBN:: 9781484301456

ISSN:: 1018-5941

Pages:: 60

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

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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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.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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