Model Uncertainty and Macrodynamics

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This project involves four studies of macroeconomic dynamics all set in contexts where decisions are made under model uncertainty. The first involves extending the authors previous work on robust decision and equilibrium theory. Here, model uncertainty induces decision makers to incorporate a preference for robustness of decisions across models. The aim is to extend characterizations of the effects of Knightian uncertainty on prices of risky securities. The second study analyzes adaptive learning as a source of recurrent dynamics. The author develops and applies a theory of the recurrent dynamics that a class of adaptive models displays away from rational expectations equilibria. The third study involves the discovery of key technical principles governing the proper supply of monies of different denominations as an historical case study of social learning. The final study employs the use of an econometric model of hidden periodicity as a laboratory in which to evaluate competing theoretical models of heterogeneity of beliefs (i.e., rational beliefs versus merging of beliefs). The first two studies and the last one are united in various ways, including the use of common econometric and mathematical methods used to characterize and manipulate the distance between models.