Parameter Learning in General Equilibrium : The Asset Pricing Implications

  title={Parameter Learning in General Equilibrium : The Asset Pricing Implications},
  author={Pierre Collin-Dufresne and Lars Lochstoer},
Parameter learning strongly ampli…es 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, rare events, or model selection. Overall, parameter learning generates long-lasting, quantitatively signi…cant additional macro risks… CONTINUE READING
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