Parameter Learning in General Equilibrium: The Asset Pricing Implications

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

No 19705, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Parameter learning strongly amplifies the impact of macro 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, the variance of shocks, rare events, or model selection. Overall, parameter learning generates long-lasting, quantitatively significant additional macro risks that help explain standard asset pricing puzzles.

JEL-codes: G0 G00 G1 G10 G12 G14 (search for similar items in EconPapers)
Date: 2013-12
Note: AP EFG
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Citations: View citations in EconPapers (25)

Published as Pierre Collin-Dufresne & Michael Johannes & Lars A. Lochstoer, 2016. "Parameter Learning in General Equilibrium: The Asset Pricing Implications," American Economic Review, vol 106(3), pages 664-698.

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