Unemployment and econometric learning

Carl Singleton and Daniel Schaefer

MPRA Paper from University Library of Munich, Germany

Abstract: We apply well-known results of the econometric learning literature to a standard RBC model with unemployment. The unique REE is always expectationally stable with decreasing gain learning, and this result is robust to over-parametrisation of the econometric model relative to the minimum state variable form used by agents (Strong E-stability). And so, from this perspective, the assumption of rational expectations in the Mortensen-Pissarides is not unreasonable. Using a parametrisation with UK data, simulations suggest that the implied rate of convergence to the rational expectations equilibrium (REE) with least squares learning is however slow. The cyclical response of unemployment to structural shocks is muted under learning, and a parametrisation which guarantees root-t convergence is generally not consistent with attempts to match the observed volatility of labour market data using the standard model.

Keywords: Real business cycle; unemployment; adaptive learning; expectational stability (search for similar items in EconPapers)
JEL-codes: D83 E24 E32 J64 (search for similar items in EconPapers)
Date: 2015-02-19
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/63162/1/MPRA_paper_63162.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/65009/1/MPRA_paper_65009.pdf revised version (application/pdf)

Related works:
Journal Article: Unemployment and econometric learning (2018)
Working Paper: Unemployment and econometric learning (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:63162

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().