Professor Hansen will discuss his research on the linkages between the financial sector and the macroeconomy.
Hansen has made fundamental contributions to our understanding of how economic actors cope with risky and changing environments. He incorporates beliefs, doubts, and learning into representative agent models. Hansen and his collaborators have recently developed methods for modeling economic decision-making in environments in which uncertainty is hard to quantify.
Professor Hansen is best known for his work on the Generalized Method of Moments (GMM), and applying it to the analysis of models that link financial markets to the macroeconomy. For this work, he was awarded the Nobel Memorial Prize in Economics, jointly with Robert J. Shiller and Eugene Fama in 2013.
Hansen has used GMM to analyze economic models in numerous fields including labor economics, international finance, finance and macroeconomics. This method has been widely adopted where fully specifying and solving a model of a complex economic environment makes maximum likelihood estimation unwieldy or inapplicable. Hansen has demonstrated how to exploit moment conditions (e.g. relations where conditional expectations are known to be zero at true parameter values) to construct reasonable, reliable estimators with less stringently maintained model assumptions than needed for maximum likelihood estimation. In other words GMM allows a researcher to explore important linkages within a full economic system of relations without having to specify and analyze all of the specific components at the same time.
"Economic models are parables, and using GMM economists get to examine and test important parts of the parable without getting lost in irrelevant details. It has let us learn what the data have to say, refine models, understand where they work and where they don't, emphasize the economic intuition, and break out of the straightjacket of 'reject' or 'don't reject,' to a much more fruitful empirical style." (http://johnhcochrane.blogspot.com/2013/10/hansens-nobel.html)
Other research interests include work on the long-run risk-return tradeoff, and the examination of the term structure of pricing risk shocks in dynamic macroeconomic models through the use of "dynamic valuation decomposition."
Hansen's leadership role with the Macro Financial Modeling Group (MFM) includes identifying improved macroeconomic models with enhanced linkages to financial markets, with the aim of providing better policy tools for monitoring so-called systemic risks to the economy. Referring to the Financial Crisis of 2008, Hansen said, "Because it's such a complicated problem and because there are so many things we don't understand, the best approach is to do it with simplicity and transparency and worry about fine-tuning things once our knowledge base expands."
Hansen's interests also include the climate debate, contributing his expertise on decision-making under uncertainty.
Join us as Professor Hansen explores the intersection of economics, finance, and statistics, and his research implications on policy.
$7 pre - $10 at the door.