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|
|Date of revision:|
|Publication status:||Published in Economics Letters (April 2001, v. 71 no. 1, p43-48)|
|Contact details of provider:|| Postal: P.O. Box 7702, San Francisco, CA 94120-7702|
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- Shiller, Robert J, 1981.
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American Economic Review,
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- Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
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"Formulating and estimating dynamic linear rational expectations models,"
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Elsevier, vol. 2(1), pages 7-46, May.
- Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers 127, Federal Reserve Bank of Minneapolis.
- Lars Hansen & Thomas Sargent & Thomas Tallarini, .
"Robust Permanent Income and Pricing,"
GSIA Working Papers
1997-51, Carnegie Mellon University, Tepper School of Business.
- Lars Peter Hansen & Thomas J. Sargent, 1981.
"A note on Wiener-Kolmogorov prediction formulas for rational expectations models,"
69, Federal Reserve Bank of Minneapolis.
- Hansen, Lars Peter & Sargent, Thomas J., 1981. "A note on Wiener-Kolmogorov prediction formulas for rational expectations models," Economics Letters, Elsevier, vol. 8(3), pages 255-260.
- 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.
- Kenneth Kasa, 1999.
"Model uncertainty, robust policies, and the value of commitment,"
Working Paper Series
99-14, Federal Reserve Bank of San Francisco.
- Kasa, Kenneth, 2002. "Model Uncertainty, Robust Policies, And The Value Of Commitment," Macroeconomic Dynamics, Cambridge University Press, vol. 6(01), pages 145-166, February.
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