Wanting Robustness in Macroeconomics
In: Handbook of Monetary Economics
AbstractRobust control theory is a tool for assessing decision rules when a decision maker distrusts either the specification of transition laws or the distribution of hidden state variables or both. Specification doubts inspire the decision maker to want a decision rule to work well for a [empty set] of models surrounding his approximating stochastic model. We relate robust control theory to the so-called multiplier and constraint preferences that have been used to express ambiguity aversion. Detection error probabilities can be used to discipline empirically plausible amounts of robustness. We describe applications to asset pricing uncertainty premia and design of robust macroeconomic policies.
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Misspecification; Uncertainty; Robustness; Expected Utility; Ambiguity;
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- E0 - Macroeconomics and Monetary Economics - - General
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- Daniel F. Waggoner & Tao Zha, 2010.
"Confronting Model Misspecification in Macroeconomics,"
1012, Department of Economics, Emory University (Atlanta).
- Waggoner, Daniel F. & Zha, Tao, 2012. "Confronting model misspecification in macroeconomics," Journal of Econometrics, Elsevier, vol. 171(2), pages 167-184.
- Daniel F. Waggoner & Tao Zha, 2012. "Confronting Model Misspecification in Macroeconomics," NBER Working Papers 17791, National Bureau of Economic Research, Inc.
- Daniel F. Waggoner & Tao Zha, 2010. "Confronting model misspecification in macroeconomics," Working Paper 2010-18, Federal Reserve Bank of Atlanta.
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