Survey Expectations and Stochastic Trends in Modelling the Employment-Output Equation.

The study examines three alternative specifications for the employment-output equation: the standard employment-output equation; a specification that introduces forward-looking expectations by utilizing business survey data; and a specification that allows technical progress to follow a stochastic trend. The purpose of the study is, hence, to investigate whether the modifications related to the use of business survey data or stochastic trends, which are found to be of considerable importance in explaining movements in employment in recent U.K. studies, contribute also to the Finnish employment-output equation, whereas the contribution of the stochastic trend variable to the model is found to be negligible. Copyright 1992 by Blackwell Publishing Ltd