Bounded rationality and unemployment dynamics

David Evans; George W. Evans; Bruce McGough

doi:10.1016/j.econlet.2021.110150

Bounded rationality and unemployment dynamics

David Evans^*
, George W. Evans
, Bruce McGough

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

Using the bounded rationality implementation developed in Evans et al. (2021) , we consider unemployment dynamics driven by aggregate productivity shocks within a McCall-type labor-search model. We find that bounded rationality magnifies the impact effect of a decline in productivity on unemployment. Boundedly rational agents are overly pessimistic about wage offers during the course of a recession, resulting in higher unemployment relative to the rational model.

Original language	English
Article number	110150
Journal	Economics Letters
Volume	In Press
Early online date	19 Nov 2021
DOIs	https://doi.org/10.1016/j.econlet.2021.110150
Publication status	E-pub ahead of print - 19 Nov 2021

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

Search and unemployment
Adaptive learning
Bounded rationality
Business cycles

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Evans_2021_EL_BRUD_AAM
Copyright © 2021 Elsevier B.V. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.econlet.2021.110150.
Accepted author manuscript, 473 KBLicence: CC BY-NC-ND

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abstract = "Using the bounded rationality implementation developed in Evans et al. (2021) , we consider unemployment dynamics driven by aggregate productivity shocks within a McCall-type labor-search model. We find that bounded rationality magnifies the impact effect of a decline in productivity on unemployment. Boundedly rational agents are overly pessimistic about wage offers during the course of a recession, resulting in higher unemployment relative to the rational model.",

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AB - Using the bounded rationality implementation developed in Evans et al. (2021) , we consider unemployment dynamics driven by aggregate productivity shocks within a McCall-type labor-search model. We find that bounded rationality magnifies the impact effect of a decline in productivity on unemployment. Boundedly rational agents are overly pessimistic about wage offers during the course of a recession, resulting in higher unemployment relative to the rational model.

KW - Search and unemployment

KW - Adaptive learning

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KW - Business cycles

U2 - 10.1016/j.econlet.2021.110150

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JO - Economics Letters

JF - Economics Letters

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Bounded rationality and unemployment dynamics

Abstract

UN SDGs

Keywords

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