A robust Hansen-Sargent prediction formula
This 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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|Date of creation:||2000|
|Publication status:||Published in Economics Letters (April 2001, v. 71 no. 1, p43-48)|
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- Kasa, Kenneth, 2002.
"Model Uncertainty, Robust Policies, And The Value Of Commitment,"
Cambridge University Press, vol. 6(01), pages 145-166, February.
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- Lars Peter Hansen & Thomas J. Sargent & Thomas D. Tallarini Jr., 1997. "Robust Permanent Income and Pricing," Levine's Working Paper Archive 596, David K. Levine.
- Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
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- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October. Full references (including those not matched with items on IDEAS)