Transient contractionary monetary policy leads to a “very persistent” drop in labour force participation and labour productivity, researchers with the Bank of Canada find.

The authors model a raise in rates that reduces total labour income by 1% within a year. “As workers flow into and remain stuck in unemployment, their skills depreciate, making job opportunities less likely to arrive and wages upon re-employment less attractive,” they say. “Ten years after the shock, long after the surprise to