Wanting Robustness in Macroeconomics

@inproceedings{Hansen2000WantingRI,
  title={Wanting Robustness in Macroeconomics},
  author={Lars Peter Hansen and Thomas J. Sargent},
  year={2000}
}
1.1. Foundations. von Neumann and Morgenstern (1944), Savage (1954), and Muth (1961) created mathematical foundations that applied economists have used to construct quantitative dynamic models for policy making. These foundations give modern dynamic models an internal coherence that lead to sharp empirical predictions. When we acknowledge that models are approximations, logical problems emerge that unsettle those foundations. Because the rational expectations assumption works the presumption of… CONTINUE READING
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