Expectation‐Driven Cycles and the Changing Dynamics of Unemployment.

This paper provides new evidence on the role of expectations for the change in unemployment dynamics over time. We show that unanticipated changes in expectations display large and persistent effects on the unemployment rate in the 2007–09 downturn, contributing to maintain unemployment high well after the most recent recession. We also find that the changes in the autocorrelation of the unemployment rate and its correlation with inflation generated by unanticipated changes in unemployment expectations help to rationalize the pattern observed in the data in the post‐1990 recessions. [ABSTRACT FROM AUTHOR]