Robustness

Lars Peter Hansen; Thomas J. Sargent

Published by Princeton University Press 2007

Robustness

Lars Peter Hansen and Thomas J. Sargent

https://doi.org/10.1515/9781400829385

Overview
Contents

About this book

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.

Author / Editor information

Lars Peter Hansen is the Homer J. Livingston Distinguished Service Professor in the Department of Economics at the University of Chicago. Thomas J. Sargent is professor of economics at New York University and senior fellow at the Hoover Institution. He is the author of The Conquest of American Inflation and the coauthor of The Big Problem of Small Change (both Princeton).

Reviews

"Hansen and Sargent were among the cadre of macroeconomists who challenged conventional (Keynesian) wisdom, and they are at it again, in a book that sparkles with ideas and analysis of fundamental problems in dynamic macroeconomics. The specific results reported here are, of course, interesting but this book is so much more: for young and ambitious economic theorists, this book is like the California gold fields in 1848."—David Kreps, Stanford University

"Best policies can be evaluated, in theory at least, given an economy. But macroeconomists have only model economies at their disposal and necessarily these economies are abstractions. A concern then is that the model economy used to evaluate policy will provide poor guidance in practice. This leads to the search for policy that performs well for a broad class of economies. This is what robust control theory is all about. In this book, Hansen and Sargent greatly extend robust control theory to make it useful in the macro policy setting. This is a major contribution to macroeconomics."—Edward C. Prescott, Nobel Prize-winning economist

Lars Peter Hansen, Co-Winner of the 2013 Nobel Prize in Economics

The book is self-contained and rigorous and may be interesting not only for macroeconomists who seek to improve the robustness of decision making process but also for control engineers interested in different applications of their professional abilities.---A. Swierniak, Zentralblatt MATH

"The pathbreaking work of Hansen and Sargent extends macroeconomic theory beyond the Bayesian paradigm. They retain the analytical power of the classical mathematical models while adding to them the subtleties of an uncertain world. Using tools from robust control theory, they present a model in which an individual's probabilistic belief is subject to noise, or to uncertainty, and redo much of macroeconomic theory under this assumption."—Itzhak Gilboa, Tel Aviv University

Thomas J. Sargent, Winner of the 2011 Nobel Prize in Economics

Topics

Frontmatter Publicly Available Download PDF	i
Contents Publicly Available Download PDF	vii
Preface Requires Authentication Unlicensed Licensed Download PDF	xv
Acknowledgments Requires Authentication Unlicensed Licensed Download PDF	xvii
Part I: Motivation and main ideas
1. Introduction Requires Authentication Unlicensed Licensed Download PDF	3
2. Basic ideas and methods Requires Authentication Unlicensed Licensed Download PDF	25
3. A stochastic formulation Requires Authentication Unlicensed Licensed Download PDF	53
Part II: Standard control and filtering
4. Linear control theory Requires Authentication Unlicensed Licensed Download PDF	67
5. The Kalman filter Requires Authentication Unlicensed Licensed Download PDF	103
Part III: Robust control
6. Static multiplier and constraint games Requires Authentication Unlicensed Licensed Download PDF	119
7. Time domain games for attaining robustness Requires Authentication Unlicensed Licensed Download PDF	139
8. Frequency domain games and criteria for robustness Requires Authentication Unlicensed Licensed Download PDF	173
9. Calibrating misspecification fears with detection error probabilities Requires Authentication Unlicensed Licensed Download PDF	213
10. A permanent income model Requires Authentication Unlicensed Licensed Download PDF	223
Part IV: Multi-agent problems
11. Competitive equilibria without robustness Requires Authentication Unlicensed Licensed Download PDF	253
12. Competitive equilibria with robustness Requires Authentication Unlicensed Licensed Download PDF	271
13. Asset pricing Requires Authentication Unlicensed Licensed Download PDF	295
14. Risk sensitivity, model uncertainty, and asset pricing Requires Authentication Unlicensed Licensed Download PDF	307
15. Markov perfect equilibria with robustness Requires Authentication Unlicensed Licensed Download PDF	327
16. Robustness in forward-looking models Requires Authentication Unlicensed Licensed Download PDF	333
Part V: Robust estimation and filtering
17. Robust filtering with commitment Requires Authentication Unlicensed Licensed Download PDF	359
18. Robust filtering without commitment Requires Authentication Unlicensed Licensed Download PDF	383
Part VI: Extensions
19. Alternative approaches Requires Authentication Unlicensed Licensed Download PDF	403
References Requires Authentication Unlicensed Licensed Download PDF	413
Index Requires Authentication Unlicensed Licensed Download PDF	427

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