Working Paper: Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks

Working Paper - November 2020 - No. 163

Authors Ravenna, Federico (Danmarks Nationalbank); Walsh, Carl E. (University of California - Santa Cruz)
Subject Economic activity and employment; Inflation, wages and prices; Monetary policy
Type Working paper
Year 2020
Published 11 November 2020
We model a COVID recession resulting from a negative demand shock and the need for social distancing, considering the US economy as an example. Low-productivity workers suffer a protracted surge in unemployment and inefficient separations from firms. Unemployment is amplified when nominal interest rates are close to the effective lower bound.