To put it simply, the longer a worker is unemployed, the more his or her skill set deteriorates because of lack of use, and the more tenuous his or her attachment to the labour force becomes, with the result that, as time passes, the less employable the worker becomes. In the end, some workers even drop out of the labour force altogether.
Recent research at the Bank has taken important steps forward in incorporating the balance sheets of banks into standard macro-economic models. This will allow us to examine how developments in financial sectors affect the transmission of monetary policy and to analyze how monetary policy should deal with financial shocks, both international and domestic.