Parameter Learning in General Equilibrium: The Asset Pricing Implications

Pierre Collin-Dufresne, Michael Johannes and Lars A. Lochstoer

American Economic Review, 2016, vol. 106, issue 3, 664-98

Abstract: Parameter learning strongly amplifies the impact of macroeconomic shocks on marginal utility when the representative agent has a preference for early resolution of uncertainty. This occurs as rational belief updating generates subjective long-run consumption risks. We consider general equilibrium models with unknown parameters governing either long-run economic growth, rare events, or model selection. Overall, parameter learning generates long-lasting, quantitatively significant additional macroeconomic risks that help explain standard asset pricing puzzles. (JEL C52, D83, E13, E32, G12)

JEL-codes: C52 D83 E13 E32 G12 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20130392
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Citations: View citations in EconPapers (114)

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