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Parameter learning in production economies

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Parameter learning in production economies. / Babiak, Mykola; Kozhan, Roman.
In: Journal of Monetary Economics, Vol. 144, 103555, 31.05.2024.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Babiak, M & Kozhan, R 2024, 'Parameter learning in production economies', Journal of Monetary Economics, vol. 144, 103555. https://doi.org/10.1016/j.jmoneco.2024.103555

APA

Babiak, M., & Kozhan, R. (2024). Parameter learning in production economies. Journal of Monetary Economics, 144, Article 103555. https://doi.org/10.1016/j.jmoneco.2024.103555

Vancouver

Babiak M, Kozhan R. Parameter learning in production economies. Journal of Monetary Economics. 2024 May 31;144:103555. Epub 2024 May 15. doi: 10.1016/j.jmoneco.2024.103555

Author

Babiak, Mykola ; Kozhan, Roman. / Parameter learning in production economies. In: Journal of Monetary Economics. 2024 ; Vol. 144.

Bibtex

@article{d97d206f1f064e0298abadec6d77e2e8,
title = "Parameter learning in production economies",
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.",
keywords = "Business cycles, Dividend yield variance decomposition, Markov switching, Parameter learning, Return predictability",
author = "Mykola Babiak and Roman Kozhan",
year = "2024",
month = may,
day = "31",
doi = "10.1016/j.jmoneco.2024.103555",
language = "English",
volume = "144",
journal = "Journal of Monetary Economics",
issn = "0304-3932",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Parameter learning in production economies

AU - Babiak, Mykola

AU - Kozhan, Roman

PY - 2024/5/31

Y1 - 2024/5/31

N2 - 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.

AB - 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.

KW - Business cycles

KW - Dividend yield variance decomposition

KW - Markov switching

KW - Parameter learning

KW - Return predictability

U2 - 10.1016/j.jmoneco.2024.103555

DO - 10.1016/j.jmoneco.2024.103555

M3 - Journal article

AN - SCOPUS:85187293798

VL - 144

JO - Journal of Monetary Economics

JF - Journal of Monetary Economics

SN - 0304-3932

M1 - 103555

ER -