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Unemployment and econometric learning

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  • Schaefer, Daniel
  • Singleton, Carl

Abstract

We apply well-known results of the econometric learning literature to the Mortensen and Pissarides real business cycle model. Agents can always learn the unique rational expectations equilibrium (REE), for all possible well-defined sets of parameter values, by using the minimum-state-variable solution to the model and decreasing gain learning. From this perspective the assumption of rational expectations in the model could be seen as reasonable. But using a parametrisation with UK data, simulations show that the speed of convergence to the REE is slow. This type of learning dampens the cyclical response of unemployment to small structural shocks.

Suggested Citation

  • Schaefer, Daniel & Singleton, Carl, 2018. "Unemployment and econometric learning," Research in Economics, Elsevier, vol. 72(2), pages 277-296.
  • Handle: RePEc:eee:reecon:v:72:y:2018:i:2:p:277-296
    DOI: 10.1016/j.rie.2017.10.005
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Real business cycle; Unemployment; Adaptive learning; Expectational stability;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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