Discussion Section with Kevin Murphy: Featuring Lars Peter Hansen
View the original feature story on the Becker Friedman Institute website.
In his latest Discussion Section interview, Kevin Murphy interviews Lars Peter Hansen, the David Rockefeller Distinguished Service Professor. Below are two highlights from their conversation.
As founding director of BFI, Lars Peter Hansen and his distinguished board of advisors were critical in developing the Institute’s commitment to sound theoretical and empirical research. Hansen describes the early mission of the Institute (when it began as the Milton Friedman Institute), and its evolution over time:
For economists building macroeconomic models, one of the important challenges is to incorporate risk aversion into those models, as Lars Peter Hansen describes in this episode:
Persistence in the macro economy takes time to understand and can change often. With his work focusing on the broader notion of uncertainty, Lars Peter Hansen describes the importance of understanding where in the macroeconomic model learning is easy and where it is hard. He also talks about asset pricing models and the link between behavioral finance and his research:
Kevin Murphy and Lars Peter Hansen talk about the three different levels of macroeconomic models:
In this episode, Murphy queries Hansen about his research, which is somewhat unique in that Hansen incorporates theory, econometrics, and data—often in the same paper. Hansen also looks back and reviews key influences on his work:
In this episode, Hansen dives into the evolution of his work spanning three broad areas that are linked closely together: macroeconomics, finance and econometrics:
As Hansen describes in this episode, incorporating learning into models is complicated, and not just including the ability of agents in the model to learn, but also their incentive to learn:
Murphy talks to Hansen about climate change models and areas of uncertainty — an area ripe for Hansen’s research approach:
Murphy and Hansen discuss the 2008 financial crisis and the subsequent need for transparent, simple and robust policies:
Hansen notes that simple, transparent approaches to economic policy reduce uncertainty by the private sector, particularly in the area of banking regulation:
In this episode, Hansen discusses opportunities to spur investment and promote job creation by rewarding innovation and developing new ideas:
Hansen discusses the important link between theory and empirics, and how BFI has nurtured that link with rising scholars: