2  BIS central bankers’ speeches  Chicago Fed economists first did work on the prospects for a declining labor force participation trend back in 2001 – near the time the rate peaked at just over 67 percent. 3 Even after revisiting this topic numerous times and with multiple generations of research assistants working on the programs, our economists’ views about the trends that are consistent with the composition of the population and a labor market near equilibrium have not changed much since then. 4 Among the many robustness analyses they performed, their models produce nearly the same trend for labor force participation as they have since 2001. 5 Depending on the details of the specification, Chicago Fed economists estimate that at the end of the second quarter of 2014, the labor force participation rate was between 1/2 and 1-1/4 percentage points below trend. Furthermore, the participation rate was as much as 3/4 of a percentage point below predictions based on its historical relationship with the unemployment rate. This disparity suggests that there likely is an extra margin of slack in labor markets beyond that indicated by the unemployment rate alone. It is interesting to dig further into these “labor force participation gaps.” Virtually all the gap during this cycle has been due to withdrawal from the labor market of workers without a college degree. By contrast, a participation gap never materialized for college graduates, even during the depths of the recession. There is no simple explanation for this striking contrast.
Mojmír Hampl: Outlook for global interest rates Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the Official Monetary and Financial Institutions Forum (OMFIF) Roundtable for Public Sector Asset Managers, London, 30 January 2018. * * * My contribution to today’s discussion on global interest rates will focus on the equilibrium real rate of interest. The equilibrium rate, which determines the development of interest rates in the long run, has decreased around the world by about 4 percentage points since the 1980s, as documented, among others, by the influential studies of Holston, Laubach, and Williams (2017) and Rachel and Smith (2017). Very recently, it seems to me, the process has started to reverse, but any progress toward a higher rate is likely to be slow. Equilibrium values do not change abruptly. Seven principal reasons have been identified for the decrease in this parameter observed in the past: The first is a decrease in growth expectations caused primarily by the Great Recession and the ensuing process of de-leveraging. Gloomy prospects depress demand for capital and, in consequence, also the equilibrium interest rate. Currently, however, notions of secular stagnation are losing steam, and growth expectations have slowly been recovering to pre-crisis levels. It is perhaps useful to remind ourselves that secular stagnation has been declared many times in the past – by Malthus, after the Great Depression, and during the 1970s and 1980s – only to be refuted by continued growth.