This paper builds upon the work by Tucci and Kendrick (2001) in which the authors develop a quadratic form version of the robust permanent income and pricing model described in Hansen, Sargent and Tallerini (1999). Then using the parameter values given on p. 18 of the HST paper they compute the...

It has been recognized that (i) decision makers' concerns about robustness affect prices and quantities; and (ii) uncertainty are generated by infrequent large shocks as well as continuous small shocks. An investor observes movements in variable levels but cannot perfectly distinguish their...