Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7384068 | Research in Economics | 2018 | 40 Pages |
Abstract
We apply well-known results of the econometric learning literature to the Mortensen and 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.
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Authors
Daniel Schaefer, Carl Singleton,