Slow Recoveries and Unemployment Traps: Monetary Policy in a Time of Hysteresis*

Autor: Sushant Acharya, Julien Bengui, Keshav Dogra, Shu Lin Wee
Rok vydání: 2022
Předmět:
Zdroj: The Economic Journal. 132:2007-2047
ISSN: 1468-0297
0013-0133
DOI: 10.1093/ej/ueac016
Popis: We analyse monetary policy in a model where temporary shocks can permanently scar the economy’s productive capacity. Workers lose skill while unemployed and are costly to retrain, generating multiple steady-state unemployment rates. Following a large shock, unless monetary policy acts aggressively and quickly enough to prevent a significant rise in unemployment, hiring falls to a point where the economy recovers slowly at best—at worst, it falls into a permanent unemployment trap. Monetary policy can only avoid these outcomes if it commits in a timely manner to more accommodative policy in the future. Timely commitment is essential as the effectiveness of monetary policy is state dependent: once the recession has left substantial scars, monetary policy cannot speed up a slow recovery, or escape from an unemployment trap.
Databáze: OpenAIRE
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