Parameter Learning in General Equilibrium: The Asset Pricing Implications
Pierre Collin-Dufresne, Michael Johannes, Lars A. Lochstoer
American Economic Review · 2016 · Volume 106 · Issue 3
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)
Keywords
Model Evaluation, Validation, and Selection, Search, Learning, Information and Knowledge, Communication, Belief, Unawareness, General Aggregative Models: Neoclassical, Business Fluctuations, Cycles, Asset Pricing, Trading Volume, Bond Interest Rates
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