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Introduction to Robustness

In: Robustness

Contents:

Author Info

  • Lars Peter Hansen

    (University of Chicago)

  • Thomas J. Sargent

    (New York University, Hoover Institution)

Abstract

The standard theory of decision making under uncertainty advises the decision maker to form a statistical model linking outcomes to decisions and then to choose the optimal distribution of outcomes. This assumes that the decision maker trusts the model completely. But what should a decision maker do if the model cannot be trusted? Lars Hansen and Thomas Sargent, two leading macroeconomists, push the field forward as they set about answering this question. They adapt robust control techniques and apply them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics. Technical, rigorous, and self-contained, this book will be useful for macroeconomists who seek to improve the robustness of decision-making processes.

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Bibliographic Info

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This chapter was published in: Lars Peter Hansen & Thomas J. Sargent Robustness, , pages , 2007.

This item is provided by Princeton University Press in its series Introductory Chapters with number 8535-1.

Handle: RePEc:pup:chapts:8535-1

Contact details of provider:
Web page: http://press.princeton.edu

Related research

Keywords: decision-making; uncertainty; statistical models; control techniques; economic modeling; dynamic microeconomics; misspecification;

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Cited by:
  1. Pierpaolo Benigno & Luigi Paciello, 2010. "Monetary Policy, Doubts and Asset Prices," EIEF Working Papers Series 1024, Einaudi Institute for Economic and Finance (EIEF), revised Sep 2010.
  2. Christian Traeger, 2012. "Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting," CESifo Working Paper Series 3793, CESifo Group Munich.
  3. George W. Evans, 2011. "Comment on "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing"," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 61-71 National Bureau of Economic Research, Inc.
  4. Leitemo , Kai & Söderström , Ulf, 2005. "Robust monetary policy in a small open economy," Research Discussion Papers 20/2005, Bank of Finland.
  5. Beber, Alessandro & Breedon, Francis & Buraschi, Andrea, 2010. "Differences in beliefs and currency risk premiums," Journal of Financial Economics, Elsevier, vol. 98(3), pages 415-438, December.
  6. Uhlig, Harald, 2012. "Economics and reality," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 29-41.
  7. Andreas Fuster & Benjamin Hebert & David Laibson, 2011. "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing," NBER Chapters, in: NBER Macroeconomics Annual 2011, Volume 26, pages 1-48 National Bureau of Economic Research, Inc.
  8. Bigio, Saki, 2010. "Learning under fear of floating," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1923-1950, October.
  9. Mark Salmon & Roman Kozhan, 2008. "Uncertainty Aversion in a Heterogeneous AgentModel of Foreign Exchange Rate Formation," Working Papers wp08-05, Warwick Business School, Financial Econometrics Research Centre.
  10. Jayant Ganguli & Scott Condie, 2012. "The pricing effects of ambiguous private information," Economics Discussion Papers 720, University of Essex, Department of Economics.
  11. Sánchez, Marcelo, 2011. "Robust central banking under wage bargaining: Is monetary policy transparency beneficial?," Economic Modelling, Elsevier, vol. 28(1-2), pages 432-438, January.
  12. Grüne, Lars & Semmler, Willi, 2008. "Asset pricing with loss aversion," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3253-3274, October.
  13. Kerkhof, Jeroen & Melenberg, Bertrand & Schumacher, Hans, 2010. "Model risk and capital reserves," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 267-279, January.

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