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Author:Hansen, Lars Peter 

Working Paper
Examining macroeconomic models through the lens of asset pricing
Dynamic stochastic equilibrium models of the macro economy are designed to match the macro time series including impulse response functions. Since these models aim to be structural, they also have implications for asset pricing. To assess these implications, we explore asset pricing counterparts to impulse response functions. We use the resulting dynamic value decomposition (DVD) methods to quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or compensations that investors must receive because of the exposure to such shocks. We build on the continuous-time methods developed in Hansen and Scheinkman (2010), Borovicka et al. (2011) and Hansen (2011) by constructing discrete-time shock elasticities that measure the sensitivity of cash flows and their prices to economic shocks including economic shocks featured in the empirical macroeconomics literature. By design, our methods are applicable to economic models that are nonlinear, including models with stochastic volatility. We illustrate our methods by analyzing the asset pricing model of Ai et al. (2010) with tangible and intangible capital.
AUTHORS: Borovicka, Jaroslav; Hansen, Lars Peter
DATE: 2012

Working Paper
Flat rate taxes with adjustment costs and several capital stocks and household types
AUTHORS: Hansen, Lars Peter; Sargent, Thomas J.
DATE: 1993

Discussion Paper
Implications of security market data for models of dynamic economies
We show how to use security market data to restrict the admissible region for means and standard deviations of intertemporal marginal rates of substitution (IMRSs) of consumers. Our approach is (i) nonparametric and applies to a rich class of models of dynamic economies; (ii) characterizes the duality between the mean-standard deviation frontier for IMRSs and the familiar mean-standard deviation frontier for asset returns; and (iii) exploits the restriction that IMRSs are positive random variables. The region provides a convenient summary of the sense in which asset market data are anomalous from the vantage point of intertemporal asset pricing theory.
AUTHORS: Jagannathan, Ravi; Hansen, Lars Peter
DATE: 1990

Conference Paper
Certainty equivalence and model uncertainty
Simon?s and Theil?s certainty equivalence property justifies a convenient algorithm for solving dynamic programming problems with quadratic objectives and linear transition laws: first, optimize under perfect foresight, then substitute optimal forecasts for unknown future values. A similar decomposition into separate optimization and forecasting steps prevails when a decision maker wants a decision rule that is robust to model misspecification. Concerns about model misspecification leave the first step of the algorithm intact and affect only the second step of forecasting the future. The decision maker attains robustness by making forecasts with a distorted model that twists probabilities relative to his approximating model. The appropriate twisting emerges from a two-player zero-sum dynamic game.
AUTHORS: Sargent, Thomas J.; Hansen, Lars Peter
DATE: 2005

Conference Paper
Model uncertainty and policy evaluation: some theory and empirics - comments
AUTHORS: Hansen, Lars Peter
DATE: 2005

Conference Paper
Flat rate taxes with adjustment costs and several capital stocks and household types
AUTHORS: Hansen, Lars Peter; Sargent, Thomas J.
DATE: 1993-03

Conference Paper
Recursive linear models of dynamic economies
AUTHORS: Sargent, Thomas J.; Hansen, Lars Peter
DATE: 1993-03

Conference Paper
Empirical and policy performance of a forward-looking monetary model, comments
AUTHORS: Hansen, Lars Peter
DATE: 2004-03

Working Paper
How Much has Wealth Concentration Grown in the United States? A Re-Examination of Data from 2001-2013
Well known research based on capitalized income tax data shows robust growth in wealth concentration in the late 2000s. We show that these robust growth estimates rely on an assumption---homogeneous rates of return across the wealth distribution---that is not supported by data. When the capitalization model incorporates heterogeneous rates of return (on just interest-bearing assets), wealth concentration estimates in 2011 fall from 40.5% to 33.9%. These estimates are consistent in levels and trend with other micro wealth data and show that wealth concentration increases until the Great Recession, then declines before increasing again.
AUTHORS: Bricker, Jesse; Henriques, Alice M.; Hansen, Lars Peter
DATE: 2018-04-13

Report
Instrumental variables procedures for estimating linear rational expectations models
A prediction formula for geometrically declining sums of future forcing variables is derived for models in which the forcing variables are generated by a vector autoregressive-moving average process. This formula is useful in deducing and characterizing cross-equation restrictions implied by linear rational expectations models.
AUTHORS: Sargent, Thomas J.; Hansen, Lars Peter
DATE: 1981

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