## 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.

Published in:
American Economic Review, 106, 3, 664-698
Year:
2016
Publisher:
Nashville, American Economic Association
ISSN:
0002-8282
Laboratories: