Adaptive Learning and Labor Market Dynamics

Federico Di Pace, Kaushik Mitra and S. Zhang

Journal of Money, Credit and Banking, 2021, vol. 53, issue 2-3, 441-475

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 that cannot be replicated: properties of wage forecasts published by institutions in the near term. A parsimonious model with adaptive learning can 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.

Date: 2021
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https://doi.org/10.1111/jmcb.12764

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Working Paper: Adaptive learning and labour market dynamics (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:53:y:2021:i:2-3:p:441-475

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