Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306707 
Year of Publication: 
2024
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2024-39
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We develop a Heterogeneous Agent New Keynesian model with a three-state frictional labour market that is consistent with the empirical evidence that (i) low-skilled workers are more exposed to the business cycle, (ii) displacement leads to long-lasting earnings losses, and (iii) unemployment is a stepping stone toward exit from the labor force. In this environment, a transient contractionary monetary policy shock induces a very persistent reduction in labour force participation and labour productivity, especially among workers at the bottom of the skill distribution. Despite the negative hysteresis on output, the model does not give rise to protracted deflation.
Subjects: 
Monetary Policy Transmission
Labour Markets
JEL: 
E21
E24
E31
E32
E52
J24
J64
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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