School of Business
424 Uris Hall
New York, NY 10027
Institutional Affiliation: Columbia University
NBER Working Papers and Publications
|December 2013||Parameter Learning in General Equilibrium: The Asset Pricing Implications|
with Pierre Collin-Dufresne, Lars A. Lochstoer: w19705
Parameter learning strongly amplifies the impact of macro 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, the variance of shocks, rare events, or model selection. Overall, parameter learning generates long-lasting, quantitatively significant additional macro risks that help explain standard asset pricing puzzles.
Published: Pierre Collin-Dufresne & Michael Johannes & Lars A. Lochstoer, 2016. "Parameter Learning in General Equilibrium: The Asset Pricing Implications," American Economic Review, vol 106(3), pages 664-698.