www.elsevier.com / locate /econbase A robust Hansen–Sargent prediction formula

This paper derives a formula for the optimal forecast of a discounted sum of future values of a random variable, where optimal is defined in terms of the minimized H-norm of the forecast error. 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. Ó 2001 Elsevie