American Economic Review Vol. 106 No. 3 2016

Parameter Learning in General Equilibrium: The Asset Pricing Implications

Pierre Collin-Dufresne¹; Michael Johannes²; Lars A. Lochstoer³

¹ École Polytechnique Fédérale de Lausanne, Quartier UNIL-Dorigny, Extranef 209, CH-1015 Lausanne, Switzerland, Swiss Finance Institute, and CEPR () · ² Columbia Business School, 410 Uris Hall, 3022 Broadway, New York, NY 10027 (e-mail: ) · ³ Columbia Business School, 424 Uris Hall, 3022 Broadway, New York, NY 10027 (e-mail: )

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.

DOI

10.1257/aer.20130392

Volume

106

Issue

3

Pages

664-698

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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