Four types of ignorance

Lars Peter Hansen, Thomas J. Sargent

    Research output: Contribution to journalArticle

    Abstract

    This paper studies alternative ways of representing uncertainty about a law of motion in a version of a classic macroeconomic targetting problem of Milton Friedman (1953). We study both "unstructured uncertainty" - ignorance of the conditional distribution of the target next period as a function of states and controls - and more "structured uncertainty" - ignorance of the probability distribution of a response coefficient in an otherwise fully trusted specification of the conditional distribution of next period's target. We study whether and how different uncertainties affect Friedman's advice to be cautious in using a quantitative model to fine tune macroeconomic outcomes.

    Original languageEnglish (US)
    Pages (from-to)97-113
    Number of pages17
    JournalJournal of Monetary Economics
    Volume69
    DOIs
    StatePublished - Jan 1 2015

    Keywords

    • Expected utility
    • Model misspecification
    • Risk
    • Robustness
    • Uncertainty

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Fingerprint Dive into the research topics of 'Four types of ignorance'. Together they form a unique fingerprint.

  • Cite this