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Parameter learning in production economies
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Babiak, Mykola and Kozhan, Roman (2024) Parameter learning in production economies. Journal of Monetary Economics . 103555. doi:10.1016/j.jmoneco.2024.103555 ISSN 0304-3932. (In Press)
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Official URL: https://doi.org/10.1016/j.jmoneco.2024.103555
Abstract
We examine how parameter learning amplifies the impact of macroeconomic shocks on equity prices and quantities in a standard production economy where a representative agent has Epstein-Zin preferences. An investor observes technology shocks that follow a regime-switching process but does not know the underlying model parameters governing the short-term and long-run perspectives of economic growth. We show that rational belief updating endogenously generates long-run risks that help explain various asset pricing facts, most prominently, dividend yield variance decomposition. The asset pricing implications of endogenous long-run risks depend crucially on the introduction of a procyclical dividend process.
Item Type: | Journal Article | ||||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Business cycles , Business cycles -- Mathematical mdoels, Capital assets pricing model, Monetary policy | ||||||
Journal or Publication Title: | Journal of Monetary Economics | ||||||
Publisher: | Elsevier BV | ||||||
ISSN: | 0304-3932 | ||||||
Official Date: | 8 February 2024 | ||||||
Dates: |
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Article Number: | 103555 | ||||||
DOI: | 10.1016/j.jmoneco.2024.103555 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | In Press | ||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||
Date of first compliant deposit: | 9 January 2024 | ||||||
Date of first compliant Open Access: | 9 February 2024 | ||||||
RIOXX Funder/Project Grant: |
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