Abstract: Through introducing the labor force participation rate into the Taylor rule which contains the financial conditions index, this paper carries out a test of the financial accelerator effect with TVAR model. The findings show that the labor force participation rate has a stronger impact on the interest rate; in turn the interest rate has a certain degree of impact on the labor force participation rate. This indicates that to introduce the labor force participation rate target into the monetary policy framework of China’s multi-target system has the foundation of experiences and facts. In order to improve the labor force participation rate, it is necessary to solve the current periodic problems through the conversion period factor in the monetary policy, to promote the development of the medium-sized enterprises and private entrepreneurs through concessional loans and so on, and to lay particular emphasis on the labor-intensive enterprises and industries and the tertiary industry through the credit policy, so as to relieve the income disparity between regions and the development differences. In addition, the monetary policy as well as other macro-policies may moderately encourage the development of the vocational education and training; and combined with the policies of appropriate retirement postponing, it can enlarge the economically active population and increase the labor force participation rate.

Key words: labor force participation rate; Taylor rule; financial accelerator; TVAR model