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Unemployment and econometric learning

Schaefer, D. and Singleton, C. (2018) Unemployment and econometric learning. Research in Economics, 72 (2). pp. 277-296. ISSN 1090-9443

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To link to this item 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.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:77908
Uncontrolled Keywords:Real business cycle; Unemployment; Adaptive learning; Expectational stability
Publisher:Elsevier

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