EconPapers    
Economics at your fingertips  
 

ROBUST PERMANENT INCOME AND PRICING WITH FILTERING

Lars Hansen, Thomas Sargent and Neng Wang

Macroeconomic Dynamics, 2002, vol. 6, issue 1, 40-84

Abstract: A planner and agent in a permanent-income economy cannot observe part of the state, regard their model as an approximation, and value decision rules that are robust across a set of models. They use robust decision theory to choose allocations. Equilibrium prices reflect the preference for robustness and so embody a “market price of Knightian uncertainty.” We compute market prices of risk and compare them with a model that assumes that the state is fully observed. We use detection error probabilities to constrain a single parameter that governs the taste for robustness.

Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (85)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:6:y:2002:i:01:p:40-84_02

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing (csjnls@cambridge.org).

 
Page updated 2024-12-26
Handle: RePEc:cup:macdyn:v:6:y:2002:i:01:p:40-84_02