Adaptive learning and labour market dynamics

Federico Di Pace, Kaushik Mitra and Shoujian Zhang
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Shoujian Zhang: Addiko Bank

No 633, Bank of England working papers from Bank of England

Abstract: The standard search and matching model with rational expectations is well known to be unable to generate amplification in unemployment and vacancies. We document a new feature it is unable to replicate: properties of survey forecasts of unemployment in the near term. We present a parsimonious model with adaptive learning and simple autoregressive forecasting rules which provide a solution to both of these problems. Firms choose vacancies by forecasting wages using simple autoregressive models; they have greater incentive to post vacancies at the time of a positive productivity shock because of overoptimism about the discounted value of expected profits.

Keywords: Adaptive learning; bounded-rationality; search and matching frictions (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2016-12-09
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Adaptive Learning and Labor Market Dynamics (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0633

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