but observable structural breaks, in equilibrium recursive rational learning may inflate the equity risk premium and … reduce the risk-free interest rate for low levels of risk aversion. The key condition for these results to obtain is the … our artificial economy cannot generate asset returns matching the empirical evidence for any positive relative risk …

risk-free interest rates. In fact, when the model is calibrated to U.S. consumption growth data, average risk premia and … levels of risk aversion. Even ruling out pessimistic beliefs, recursive learning inflates the equity premium without …