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Optimal Growth and Uncertainty: Learning

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Author Info

  • Christos Koulovatianos
  • Leonard J. Mirman
  • Marc Santugini

    () (IEA, HEC Montréal)

Abstract

We introduce learning in a Brock-Mirman environment and study the effect of risk generated by the planner's econometric activity on optimal consumption and investment. Here, learning introduces two sources of risk about future payoffs: structural uncertainty and uncertainty from the anticipation of learning. The latter renders control and learning nonseparable. We present two sets of results in a learning environment. First, conditions under which the introduction of learning increases or decreases optimal consumption are provided. The effect depends on the strengths and directions of the two sources of risk, which may pull in opposite directions. Second, the effects of changes in the mean and riskiness of the distribution of the signal and initial beliefs on optimal consumption are studied.

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File URL: http://www.hec.ca/iea/cahiers/2007/iea0705_msantugini_v2.pdf
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Bibliographic Info

Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 07-05.

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Length: 39 pages
Date of creation: Jun 2007
Date of revision: Feb 2008
Handle: RePEc:iea:carech:0705

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Phone: (514) 340-6463
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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Keywords: Optimal Growth; Uncertainty; Learning; Dynamic Programming;

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References

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Cited by:
  1. repec:ebl:ecbull:v:3:y:2008:i:57:p:1-15 is not listed on IDEAS
  2. Christos Koulovatianos, 2011. "A Paradox of Environmental Awareness Campaigns," Levine's Working Paper Archive 786969000000000041, David K. Levine.
  3. Volker Wieland & Christos Koulovatianos, 2011. "Asset Pricing under Rational Learning about Rare Disasters," 2011 Meeting Papers 1417, Society for Economic Dynamics.

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