Robust preference expansions
AbstractWe propose an approximation method for solving dynamic stochastic general equilibrium models in which agents are concerned about model misspecification. The method relies on a perturbation that treats this robust concern as a first-order concept that is preserved as the volatility of the shocks vanishes. The approximation has a clear economic interpretation and generates solutions with consequences of robust preferences that standard perturbation methods only capture using higher-order terms.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1199.
Date of creation: 2013
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