Dynamic Modelling and Rational Expectations

Aggregate Employment has changed drastically in the UK since 1979, and its volatility seems amenable to an analysis based on the REH. This paper reviews numerical methods for estimating optimal employment plans based on the joint presence of forward-looking expectations and costs in adjusting employment. It illustrates that there may be advantages to be gained from the explicit introduction of forward-looking expectations formation using a range of employment models which have each figured in the recent UK literature.