BofA responds the question above based on a San Fran Fed research. Here is an excerpt:

“Those that believe weak growth is mostly structural argue the Fed risks keeping monetary policy too easy. If you take the opposing view and believe that most of the weakness in the economy is cyclical, additional monetary easing would be appropriate. Our view is closer to the latter.  

The San Fran Fed held a conference dedicated to answering this question. A number of papers were presented, which came out with varied outcomes depending on the specification and model used. The basic conclusion was that most of the rise in the unemployment rate and loss of output could be explained by cyclical factors. This suggests that the recovery should continue and the economy has the ability to return to pre-crisis levels. As such, this justifies additional monetary easing and stimulus.  

That said, the research found that there were structural changes in the economy, particularly in housing-related areas such as employment in the homebuilding sector and financial markets. The research also found that the much of the increase in the saving rate since the recession started is structural rather than cyclical and will not be reversed. This is because credit availability and household net worth are unlikely to return anytime soon to the peaks during the housing bubble in the mid-2000s. There was a common theme in the research: the housing adjustment is partly structural and we should not expect a return to the pre-crisis market. We advise skimming through this research – we suspect Fed Chairman Bernanke gave it a close read.”

Research: Federal Reserve Bank of San Francisco

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