Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
The Role of Learning for Asset Prices and Business Cycles
Fabian Winkler
Abstract

I examine the implications of learning-based asset pricing in a model in which firms face credit constraints that depend partly on their market value. Agents learn about stock prices, but have conditionally model-consistent expectations otherwise. The model jointly matches key asset price and business cycle statistics, while the combination of financial frictions and learning produces powerful feedback between asset prices and real activity, adding substantial amplification. The model reproduces many patterns of forecast error predictability in survey data that are inconsistent with rational expectations. A reaction of the monetary policy rule to asset price growth increases welfare under learning.


Download Full text (Revision)
Download Full text (Original)
Cite this item
Fabian Winkler, The Role of Learning for Asset Prices and Business Cycles, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2016-019, 20 Jan 2016, revised 01 Mar 2017.
More from this series
JEL Classification:
Subject headings:
Keywords: Asset Pricing; Credit Constraints; Expectations; Financial Frictions; Learning; Monetary policy; Survey Data; Survey Forecasts
DOI: 10.17016/FEDS.2016.019r1
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal