Title page 1

Contents 1

Abstract 2

1. Introduction 3

2. Model Description and Calibration 5

2.1. Baseline Framework 6

2.2. Modifications to the Baseline Framework 7

2.3. Data, Sample Period, and ELB Episodes 9

3. Model Validation 10

3.1. Unconditional Business Cycle Properties 10

3.2. Cross-Correlations and Dynamic Co-Movement 11

3.3. External Validation: Resource Utilization Gaps 13

4. Constructing the SLMI: The Challenge of Multidimensional Labor Market Assessment 14

4.1. Individual Variable Signals 15

4.2. Aggregation into SLMI 16

4.3. Historical Evolution of the SLMI: Shock and Data Decompositions 17

5. Comparing the SLMI to Alternative Measures: Is the Unemployment Rate a Sufficient Statistic? 19

6. Uncertainty and the One-Sided Filter 21

6.1. Credible Intervals 21

6.2. One-Sided Filter 23

7. Conclusion 23

References 24

Supplemental Appendix 27

A. Model Details and Equations 27

B. All Labor Market Gaps 40

C. Okun's Law 41

D. Double decomposition 42

Table 1. Calibrated Parameters and Longer-Run Values 8

Table 2. Business Cycle Statistics: Data vs. Model 11

Table 3. Weights in SLMI 16

Figure 1. Cross-Correlations with Output: Data vs. Model 12

Figure 2. Model-Implied Gaps vs. External Estimates 13

Figure 3. Model-Based Labor Market Gaps and SLMI 15

Figure 4. Historical Decomposition SLMI 17

Figure 5. The Role of Non-Labor Market Data 19

Figure 6. SLMI and Alternative Labor Market Gaps 20

Figure 7. SLMI 68% Credible Intervals 22

Figure 8. SLMI: Two-Sided vs. One-Sided Filters 23

Table A.1. Model Parameters 35

Figure A.1. Time-Varying Taylor Rule Parameters 38

Figure A.2. Expected ELB duration 39

Figure A.3. Model-Based Flexible-Price Gaps 40

Figure A.4. Unemployment Rate Gap vs Output Gap 41

Figure A.5. Double decomposition SLMI 42