Adaptive learning and labor market dynamics

Research output: Contribution to journalArticlepeer-review

Authors

Colleges, School and Institutes

External organisations

  • Erste Group Bank AG
  • 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 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.

Bibliographic note

Publisher Copyright: © 2021 The Ohio State University

Details

Original languageEnglish
Pages (from-to)441-475
Number of pages35
JournalJournal of Money, Credit and Banking
Volume53
Issue number2-3
Early online date13 Jan 2021
Publication statusPublished - Mar 2021

Keywords

  • adaptive learning, bounded-rationality, search and matching frictions