Economics, Econometrics and Finance
4 years ago

Monetary policy crucial as labor force participation drops post-recession

RePEc: Research Papers in Economics
Labor Force Participation and Monetary Policy in the Wake of the Great Recession
Christopher J. Erceg, Andrew T. Levin

Paper Summary

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The decline in the U.S. labor force participation rate after 2007 was mainly due to economic factors. A model was created to show that participation in the workforce stays steady during normal times but drops significantly after a big and lasting economic shock. This has important implications for how monetary policy should be designed, especially when interest rate adjustments are limited.