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research article
Parameter Learning in General Equilibrium: The Asset Pricing Implications
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.
Type
research article
Web of Science ID
WOS:000371277400006
Authors
Publication date
2016
Publisher
Published in
Volume
106
Issue
3
Start page
664
End page
698
Peer reviewed
REVIEWED
EPFL units
Available on Infoscience
April 1, 2016
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