A robust Hansen-Sargent prediction formula

Kenneth Kasa

No 2000-11, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: 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.

Keywords: Forecasting; Consumption (Economics); Prices (search for similar items in EconPapers)
Date: 2000
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Published in Economics Letters (April 2001, v. 71 no. 1, p43-48)

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