1. Parameter Learning in General Equilibrium: The Asset Pricing Implications
- Author
-
Pierre Collin-Dufresne, Lars A. Lochstoer, and Michael Johannes
- Subjects
Economics and Econometrics ,General equilibrium theory ,Economics ,jel:G00 ,jel:G0 ,C52 ,jel:G1 ,0502 economics and business ,Rare events ,Econometrics ,Capital asset pricing model ,E13 ,G12 ,Tourism and Services ,050207 economics ,Preference (economics) ,E32 ,Consumption (economics) ,050208 finance ,Model selection ,05 social sciences ,Commerce ,Representative agent ,jel:G12 ,jel:G10 ,Management ,jel:G14 ,D83 ,Marginal utility - 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)
- Published
- 2013