Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data...

We develop methods to solve general equilibrium models in which forward-looking agents are subject to waves of pessimism, optimism, and uncertainty that turn out to critically affect macroeconomic outcomes. Agents in the model are fully rational, conduct Bayesian learning, and they know that...

This paper proposes a new approach for modeling investor fear after rare disasters. The key element is to take into account that investors’ information about fundamentals driving rare downward jumps in the dividend process is not perfect. Bayesian learning implies that beliefs about the...

Under the assumption that individuals know the conditional distributions of signals given the payoff-relevant parameters, existing results conclude that as individuals observe infinitely many signals, their beliefs about the parameters will eventually merge. We first show that these results are...

We embed a news shock, a noisy indicator of the future state, in a two-state Markovswitching growth model. Our framework, combined with parameter learning, features rich history-dependent uncertainty dynamics. We show that bad news that arrives during a prolonged economic boom can trigger a...

We suggest to extend the stacking procedure for a combination of predictive densities, proposed by Yao et al in the journal Bayesian Analysis to a setting where dynamic learning occurs about features of predictive densities of possibly misspecified models. This improves the averaging process of...

Based on OECD evidence, equity/housing-price busts and credit crunches are followed by substantial increases in public consumption. These increases in unproductive public spending lead to increases in distortionary marginal taxes, a policy in sharp contrast with presumably optimal Keynesian...

Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data...