Global crisis

The decline in labour force participation in the US

Steven Braun, John Coglianese, Jason Furman, Betsey Stevenson, Jim Stock, 18 August 2014

The labour force participation rate in the US has fallen dramatically since 2007. This column traces this decline to three main factors: the ageing of the population, cyclical effects from the Great Recession, and an unexplained portion, which might be due to pre-existing trends unrelated to the first two. Of these three, the ageing of the population plays the largest role since it is responsible for half of the decline. Taken together, these factors suggest a roughly stable participation rate in the short-term, followed by a longer-term decline as the baby boomers continue to age. However, policy can play a meaningful role in mitigating this trend.

Secular stagnation: Facts, causes, and cures – a new Vox eBook

Coen Teulings, Richard Baldwin, 15 August 2014

Six years after the Crisis and the recovery is still anaemic despite years of zero interest rates. Is ‘secular stagnation’ to blame? This column introduces an eBook that gathers the views of leading economists including Summers, Krugman, Gordon, Blanchard, Koo, Eichengreen, Caballero, Glaeser, and a dozen others. It is too early to tell whether secular stagnation is really secular, but if it is, current policy tools will be obsolete. Policymakers should start thinking about potential solutions.

Unemployment, and product and labour-market tightness

Pascal Michaillat, Emmanuel Saez, 12 August 2014

High US unemployment rates following the crisis are a primary policy concern, but are poorly explained by existing models. This column introduces a new model of frictional labour and product markets. Price rigidities yield testable predictions pointing to the source of unemployment and product market tightness. Evidence suggests that unemployment fluctuations are driven mostly by aggregate demand shocks.

Italian growth: New recession or six-year decline?

Jeffrey Frankel, 11 August 2014

The Italian economy is reported to have slipped back into recession in the first part of 2014. This characterisation is based on a criterion for a recession standard in Europe – two successive quarters of negative growth. However, there are other criteria to define a recession. US standards would treat Italy’s economic situation as one, six-year-long recession. Whereas one cannot say whether one criterion is superior to the other, announcing a recession has further implications.

Monetary policy transmission via balance sheets: Evidence from Japan

Kaoru Hosono, Daisuke Miyakawa, 9 August 2014

In the wake of the Global Crisis, several central banks have adopted unconventional monetary policies. This column presents new evidence from Japan on the transmission of monetary policy through banks’ balance sheets. Overall, the evidence suggests that bank net worth affects loan supply, that the effect depends on monetary policy and economic growth, and that this bank balance sheet channel has a significant impact on firms’ financing and investment. Exiting from unconventional monetary policies when bank balance sheets are weak could thus have a severe adverse impact on investment.

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