American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Parameter Learning in General Equilibrium: The Asset Pricing Implications
American Economic Review
vol. 106,
no. 3, March 2016
(pp. 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)Citation
Collin-Dufresne, Pierre, Michael Johannes, and Lars A. Lochstoer. 2016. "Parameter Learning in General Equilibrium: The Asset Pricing Implications." American Economic Review, 106 (3): 664–98. DOI: 10.1257/aer.20130392Additional Materials
JEL Classification
- C52 Model Evaluation, Validation, and Selection
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E13 General Aggregative Models: Neoclassical
- E32 Business Fluctuations; Cycles
- G12 Asset Pricing; Trading Volume; Bond Interest Rates