Bounded rationality and unemployment dynamics
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.
Citation
Evans , D , Evans , G W & McGough , B 2021 , ' Bounded rationality and unemployment dynamics ' , Economics Letters , vol. In Press , 110150 . https://doi.org/10.1016/j.econlet.2021.110150
Publication
Economics Letters
Status
Peer reviewed
ISSN
0165-1765Type
Journal article
Collections
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