Perceived Unemployment Risks over Business Cycles

William Du, Adrian Monninger, Xincheng Qiu and Tao Wang

Staff Working Papers from Bank of Canada

Abstract: We backcast subjective expectations on job finding and separation in the Survey of Consumer Expectations to 1978, and use real-time machine learning forecasting to proxy their objective counterparts. We document stickiness in job finding and separation expectations in reflecting changes in real-time job finding and separation risks and their substantial heterogeneity across observable and unobservable dimensions. Calibrating these facts into a heterogeneous-agent consumption-saving model reveals that belief stickiness attenuates the precautionary saving channel. As a result, workers under-insure during recessions, leading to a more sluggish recovery afterwards. The combination of high risk exposure and under-insurance due to belief stickiness operates as a novel amplification mechanism over the business cycle.

Keywords: Business fluctuations and cycles; Labour markets; Monetary policy and uncertainty (search for similar items in EconPapers)
JEL-codes: D14 E21 E71 G51 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2025-08
New Economics Papers: this item is included in nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:25-23

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