Unemployment and econometric learning

Daniel Schaefer, Carl Singleton

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

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.
Original languageEnglish
Pages (from-to)277-296
Number of pages20
JournalResearch in Economics
Issue number2
Early online date10 Oct 2017
Publication statusPublished - Jun 2018

Keywords / Materials (for Non-textual outputs)

  • real business cycle
  • unemployment
  • adaptive learning
  • expectational stability


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