Acknowledging Misspecification in Macroeconomic Theory

Lars Hansen and Thomas Sargent

Review of Economic Dynamics, 2001, vol. 4, issue 3, 519-535

Abstract: We explore methods for confronting model misspecification in macroeconomics. We construct dynamic equilibria in which private agents and policy makers recognize that models are approximations. We explore two generalizations of reational expectations equilibria. In one of these equilibria, decision-makers use dynamic evolution equations that are imperfect statistical approximations, and in the other misspecification is impossible to detect even from infinite samples of time series data. In the first of these equilibria, decision rules are tailored to be robust to the allowable statistical discrepancies. Using frequency domain methods, we show that robust decision-makers treat model misspecification like time series econometricians.

Keywords: Robustness; Model misspecification; monetary policy rational expectations (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (121)

Downloads: (external link)
http://dx.doi.org/10.1006/redy.2001.0132 Full text (application/pdf)
Access to full texts is restricted to ScienceDirect subscribers and ScienceDirect institutional members. See http://www.sciencedirect.com/ for details.

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:red:issued:v:4:y:2001:i:3:p:519-535

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1006/redy.2001.0132

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().