A Robust Hansen-Sargent Prediction Formula

Author

Kenneth Kasa

2000-11 | December 31, 2000

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.

Article Citation

Kasa, Kenneth. 2000. “A Robust Hansen-Sargent Prediction Formula,” Federal Reserve Bank of San Francisco Working Paper 2000-11. Available at https://doi.org/10.24148/wp2000-11