Working Paper

A robust Hansen-Sargent prediction formula

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;

Status: Published in Economics Letters (April 2001, v. 71 no. 1, p43-48)

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2000

Number: 2000-11