Papers

May 2001 | Article

Robust Control and Model Uncertainty

Lars Peter Hansen, Thomas J. Sargent
Journal: American Economic Review|Volume: 91|Issue Number: 2|Pages: 60-66|Tags: Risk, Robustness and Ambiguity|Export BibTeX >

@article{hansensargent:2001,
Author = {Hansen, Lars Peter and Sargent, Thomas J.},
Date-Added = {2014-12-29 19:53:18 +0000},
Date-Modified = {2014-12-29 19:53:18 +0000},
Journal = {The American Economic Review},
Month = {May},
Number = {2},
Pages = {60-66},
Title = {Robust Control and Model Uncertainty},
Volume = {91},
Year = {2001}}

February 2001 | Article

Acknowledging Misspecification in Macroeconomic Theory

Lars Peter Hansen and Thomas J. Sargent

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 rational 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 dis- crepancies. Using frequency domain methods, we show that robust decision makers treat model misspecification like time-series econometricians.

Journal: Monetary and Economic Studies |Volume: Special Edition|Tags: Risk, Robustness and Ambiguity|Export BibTeX >
@article{hansensargent:2001,
  title={Acknowledging Misspecification in Macroeconomic Theory},
  author={Hansen, Lars Peter and Sargent, Thomas J},
  journal={Review of Economic Dynamics},
  volume={4},
  number={3},
  pages={519--535},
  year={2001},
  publisher={Elsevier}
}
May 2000 | Chapter

An Appreciation of A.W. Phillips

Lars Peter Hansen and Thomas J. Sargent

A way to honor A. W. Phillips is to describe the continuing influence of one of his enduring contributions to economic dynamics, his remarkable 1959 Biometrika paper about how discrete time observations can be used to restrict a continuous time linear model. That paper precisely described what later came to be known as the problem of `aggregation over time,’ set forth a framework for studying it, and achieved useful characterizations of it. Phillips’s 1959 paper partly shared the destiny of John F. Muth’s two 1960 and 1961 papers about rational expectations. It took years for other economists to recognize how much more could be done with their ideas. In 1960, both Phillips and Muth were far ahead of most other economists in their understanding of the technicalities of time series analysis, and their appreciation for its potential applications to economic dynamics.

Title of book: W.H. Phillips: Collected Works in Contemporary Perspective|Editor(s): Robert Leeson|Publisher: Cambridge|Export BibTeX >
@article{hansen:1995appreciation,
  title={An Appreciation of AW Phillips},
  author={Hansen, Lars P and Sargent, Thomas J},
  year={1995},
  publisher={Citeseer}
}
October 1999 | Article

Robust Permanent Income and Pricing

Lars Peter Hansen, Thomas J. Sargent, Thomas D. Tallarini, Jr.

“… I suppose there exists an extremely powerful, and, if I may so speak, malignant being, whose whole endeavours are directed toward deceiving me.” Rene Descartes, Meditations, II.

Journal: Review of Economic Studies|Volume: 66|Issue Number: 4|Pages: 873-907|Tags: Risk, Robustness and Ambiguity|Export BibTeX >
@article{hansen1999robust,
  title={Robust Permanent Income and Pricing},
  author={Hansen, Lars Peter and Sargent, Thomas J and Tallarini, Thomas D and others},
  journal={Review of Economic studies},
  volume={66},
  number={4},
  pages={873--907},
  year={1999}
}
September 1999 | Chapter

Micro Data and General Equilibrium Models

Martin Browning, Lars Peter Hansen and James J. Heckman

An extensive literature in macroeconomics and public finance uses dynamic stochastic general equilibrium models to study consumption, savings, capital accumulation, and asset pricing and to analyze alternative policies. Except for a few special cases, the economies studied cannot be analyzed using “paper and pencil” style analysis. It is often difficult to produce general theorems that are true for all parameter values of dynamic general equilibrium models. This is a general feature of nonlinear dynamic models in economics as well as in the physical sciences. For such models, knowing which parameters govern behavior is essential for understanding their empirical content and for providing quantitative answers to policy questions. For the numerical output of a dynamic equilibrium model to be interesting, the inputs need to be justified as empirically relevant. There are two sources of information that are commonly used in rationalizing parameter values. One is the behavior of time series averages of levels or ratios of key variables. These time series averages are often matched to the steady state implications of versions of the models that abstract from uncertainty. The other input is from microeconomic evidence. In this essay we discuss the use of evidence from both sources, concentrating mostly on microeconomic evidence. See King and Rebelo (1998) and Taylor (1998) for extensive discussions of calibrating real business cycle and staggered contract models, respectively.

Pages: 543-633|Title of book: Handbook of Macroeconomics|Editor(s): M. Woodford and J.B. Taylor|Tags: Financial Market Linkages to the Macroeconomy|Export BibTeX >
@article{bhh:1999,
  title={Micro Data and General Equilibrium Models},
  author={Browning, Martin and Hansen, Lars Peter and Heckman, James J},
  journal={Handbook of macroeconomics},
  volume={1},
  pages={543--633},
  year={1999},
  publisher={Elsevier}
}
September 1998 | Article

Spectral Methods for Identifying Scalar Diffusions

Lars Peter Hansen, José A. Scheinkman, Nizar Touzi

This paper shows how to identify nonparametrically scalar stationary diffusions from discrete-time data. The local evolution of the diffusion is characterized by a drift and diffusion coefficient along with the specification of boundary behavior. We recover this local evolution from two objects that can be inferred directly from discrete-time data: the stationary density and a conveniently chosen eigenvalue–eigenfunction pair of the conditional expectation operator over a unit interval of time. This construction also lends itself to a spectral characterization of the over-identifying restrictions implied by a scalar diffusion model of a discrete-time Markov process.

Journal: Journal of Econometrics|Volume: 86|Issue Number: 1|Pages: 1-32|Tags: Econometrics|Export BibTeX >
@article{hansen1998spectral,
  title={Spectral Methods for Identifying Scalar Diffusions},
  author={Hansen, Lars Peter and Scheinkman, Jos{'e} Alexandre and Touzi, Nizar},
  journal={Journal of Econometrics},
  volume={86},
  number={1},
  pages={1--32},
  year={1998},
  publisher={Elsevier}
}
March 1998 | Working Paper

Risk and Robustness in Equilibrium

Evan W. Anderson, Lars Peter Hansen, Thomas J. Sargent
Tags: Risk, Robustness and Ambiguity|Export BibTeX >
@article{anderson1998risk,
  title={Risk and Robustness in General Equilibrium},
  author={Anderson, Evan W and Hansen, Lars Peter and Sargent, Thomas J},
  journal={Preprint University of Chicago},
  year={1998}
}
July 1997 | Article

Short-term Interest Rates As Subordinated Diffusions

Timothy Conley, Lars Peter Hansen, Erzo G. J. Luttmer, José A. Scheinkman

In this article we characterize and estimate the process for short-term interest rates using federal funds interest rate data. We presume that we are observing a discrete-time sample of a stationary scalar diffusion. We concentrate on a class of models in which the local volatility elasticity is constant and the drift has a flexible specification. To accommodate missing observations and to break the link between “economic time” and calendar time, we model the sampling scheme as an increasing process that is not directly observed. We propose and implement two new methods for estimation. We find evidence for a volatility elasticity between one and one-half and two. When interest rates are high, local mean reversion is small and the mechanism for inducing stationarity is the increased volatility of the diffusion process.

Journal: Review of Financial Studies|Volume: 10|Issue Number: 3|Pages: 525-577|Tags: Econometrics|Export BibTeX >
@article{conley1997short,
  title={Short-Term Interest Rates as Subordinated Diffusions},
  author={Conley, Timothy G and Hansen, Lars Peter and Luttmer, Erzo GJ and Scheinkman, Jos{'e} A},
  journal={Review of Financial Studies},
  volume={10},
  number={3},
  pages={525--577},
  year={1997},
  publisher={Soc Financial Studies}
}
June 1997 | Article

Bootstrapping the Long Run

Timothy Conley, Lars Peter Hansen, Wen-Fang Liu

We develop and apply bootstrap methods for diffusion models whenfitted to the long run as characterized by the stationarydistribution of the data. To obtain bootstrap refinements tostatistical inference, we simulate candidate diffusion processes. Weuse these bootstrap methods to assess measurements of local meanreversion or pull to the center of the distribution for short-terminterest rates. We also use them to evaluate the fit of the model to the empirical density.

Journal: Macroeconomic Dynamics|Volume: 1|Issue Number: 2|Pages: 279-311|Tags: Econometrics|Export BibTeX >
@article{conley1997bootstrapping,
  title={Bootstrapping the Long Run},
  author={Conley, Timothy G and Hansen, Lars Peter and Liu, Wen-Fang},
  journal={Macroeconomic Dynamics},
  volume={1},
  number={02},
  pages={279--311},
  year={1997},
  publisher={Cambridge University Press}
}
June 1997 | Article

Assessing Specification Errors in Stochastic Discount Factor Models

Lars Peter Hansen and Ravi Jagannathan

In this article we develop alternative ways to compare asset pricing models when it is understood that their implied stochastic discount factors do not price all portfolios correctly. Unlike comparisons based on χ 2 statistics associated with null hypotheses that models are correct, our measures of model performance do not reward variability of discount factor proxies. One of our measures is designed to exploit fully the implications of arbitrage-free pricing of derivative claims. We demonstrate empirically the usefulness of our methods in assessing some alternative stochastic factor models that have been proposed in asset pricing literature.

Journal: The Journal of Finance|Volume: 52|Issue Number: 2|Pages: 557-590|Tags: Econometrics|Export BibTeX >
@article{hansen:1997assessing,
  title={Assessing Specification Errors in Stochastic Discount Factor Models},
  author={Hansen, Lars Peter and Jagannathan, Ravi},
  journal={The Journal of Finance},
  volume={52},
  number={2},
  pages={557--590},
  year={1997},
  publisher={Wiley Online Library}
}