Unemployment and econometric learning

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Schaefer, D. and Singleton, C. orcid id iconORCID: https://orcid.org/0000-0001-8247-8830 (2018) Unemployment and econometric learning. Research in Economics, 72 (2). pp. 277-296. ISSN 1090-9443 doi: 10.1016/j.rie.2017.10.005

Abstract/Summary

We apply well-known results of the econometric learning literature to the Mortensen-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.

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Item Type Article
URI https://reading-clone.eprints-hosting.org/id/eprint/77908
Identification Number/DOI 10.1016/j.rie.2017.10.005
Refereed Yes
Divisions Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Uncontrolled Keywords Real business cycle; Unemployment; Adaptive learning; Expectational stability
Publisher Elsevier
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