Research Publication

August 2021 | Article

Newly Published Research in the Annual Review of Economics: “Uncertainty Spillovers for Markets and Policy”

Lars Peter Hansen

Abstract:

We live in a world surrounded by uncertainty. In this essay, I show that featuring this phenomenon more in economic analyses adds to our understanding of how financial markets work and how best to design prudent economic policy. This essay explores methods that allow for a broader conceptualization of uncertainty than is typical in economic investigations. These methods draw on insights from decision theory to engage in uncertainty quantification and sensitivity analysis. Uncertainty quantification in economics differs from most sciences because there is uncertainty both from the perspective of an external observer and from people and enterprises within the model. I illustrate these methods in two example economies in which the understanding of long-term growth is limited. One example looks at uncertainty ramifications for fluctuations in financial markets, and the other considers the prudent design of policy when the quantitative magnitude of climate change and its impact on economic opportunities is unknown.

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Journal: Annual Review of Economics|Tags: Uncertainty|Export BibTeX >
@article{hansen2021uncertainty,
  title={Uncertainty Spillovers for Markets and Policy},
  author={Hansen, Lars Peter},
  journal={Annual Review of Economics},
  volume={13},
  pages={371--396},
  year={2021},
  publisher={Annual Reviews}
}