A robust Hansen-Sargent prediction formula
AbstractThis paper derives a formula for the optimal forecast of a discounted sum of future values of a random variable. This problem reflects a preference for robustness in the presence of (unstructured) model uncertainty. The paper shows that revisions of a robust forecast are more sensitive to new information, and discusses the relevance of this result to previous findings of excess sensitivity of consumption and asset prices to new information.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2000-11.
Date of creation: 2000
Date of revision:
Publication status: Published in Economics Letters (April 2001, v. 71 no. 1, p43-48)
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GE, Growth, Math methods
- Kilponen, Juha, 2004. "Robust expectations and uncertain models – A robust control approach with application to the New Keynesian economy," Research Discussion Papers 5/2004, Bank of Finland.
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