Economics Research Study

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Economics analysis is one of the oldest general-interest areas in economics, and it contributes to a wide variety of economic topics (Hansen & Sargent, 2012). Economic research aids in the development of innovative approaches to various economic challenges in order to have a significant effect on the global economy (Campbell, 2014). Furthermore, consistent economic analysis results make it attractive to both upcoming economists with groundbreaking concepts and many well-established economists worldwide (Campbell, 2014). Lars Peter Hansen, an economist, is the subject of this article, with an emphasis on his contributions to economics. Lars Peter Hansen is an American Economist, who was born on the 26th of November 1952 in Urbana, Illinois state. He practices at the University of Chicago as the David Rockefeller Distinguished Service Professor of Economics and Statistics and recently received the Nobel Memorial Prize in Economics in the year 2013 (Hansen, 2016). Hansen stands as a foremost expert in economic dynamics, and he spends the better part of his time working at the boundaries of macroeconomics, econometrics, and finance (Hansen, 2016).

After his graduation from the Utah State University with Bachelor’s degree in Mathematics and political science in 1974, Hansen later pursued Ph.D. in economics in the year 1978. He then served as an associate and assistant professor at Carnegie Mellon University, and later, in 1981, moved to the University of Chicago (Campbell, 2014). Hansen is married to Tsiang, a daughter of the celebrated economist Sho-Chieh Tsiang, and they are blessed with one son called Peter. Hansen’s father, Roger Gaurth Hansen, was a professor of biochemistry and served as a dean at the Utah State University (Campbell, 2014).

Apart from being recognized for his work on the Generalized Method of Moments, Hanses also stands as a distinguished microeconomist, dedicated to determining the correlations between macro economy and the financial sector (Broviika & Hansen, 2017). Hanse’s current collaborative research focuses on developing and applying methods for pricing the macroeconomic shocks exposure over other alternative horizons of investment, as well as investigating the implications long-term uncertainty pricing. Among other honors, Hansen was the recipient of the 2010 BBVA Foundation Frontiers of Knowledge Award under the Economy, Finance, and Management category (Broviika & Hansen, 2017).

Hansen’s Major Contributions to Economics

Lars Peter Hansen is best recognized as the economist who developed the econometric technique known as the generalized method of moments (GMM). Besides, Hansen has written and co-authored several articles that apply GMM in analyzing various economic models in several fields, including macroeconomics, labor economics, finance, and international finance (Campbell, 2014). The GMM technique has been adopted broadly in economics, and various related applications and fields, where solving and specifying a complex economic environment's model are inapplicable (Campbell, 2014). Hansen exhibited how best to exploit various moment conditions to construct reliable and reasonable estimators with less strict model assumptions than those required for maximum probability estimation (Campbell, 2014). In other words, the GMM technique provides consistent estimates without necessarily having to specify the full density function.

Additionally, with other co-others such as Robert Hodrick, Scott F. Richard, and Kenneth J. Singleton, Hansen applied GMM in his study of asset valuation model and succeeded in clarifying and classifying empirical puzzles, where real world economic and financial data were inconsistent with the usual academic models (Hansen, 2016). Alongside Ravi Jagannathan, Hansen proved that the ratio of any standard deviation of a stochastic discount factor to its mean is at least as significant as any Sharpe ratio of an asset. Such a result is termed as the Hansen–Jagannathan bound (Hansen, 2016). Hansen also worked with José Scheinkman on the long-run risk-return tradeoff, as well as the examination of pricing risk shocks’ term structure in dynamic macroeconomic models using dynamic valuation decomposition (Hansen, 2016).

Hansen has also made fundamental contributions to the people's understanding regarding how economic agents cope with the risky and changing economic environments (Hansen & Sargent, 2012). Besides Hansen’s work has been applicable in testing various models and theories that have made tremendous contributions to people’s modern understanding of pricing of assets (Hansen & Sargent, 2012). His recent research, which explores the quantification of intertemporal risk-return tradeoffs and how to model economic behavior when the investors and consumers fight with uncertainty regarding the future, has significant implications for the macroeconomy, fiscal policy, and the financial markets (Broviika & Hansen, 2017).

Also, in his recent work, Hansen focuses on uncertainty and its connection to long-term risks in the macro economy. His aim is to explore how various models that incorporate beliefs, ambiguities, as well as skepticism of investors and customers can be used to explain financial and economic data, as well as reveal the long-term repercussions of various policy options. Hansen and his coauthors have also recently developed different methods for decision-making modeling in environments where uncertainty is not easy to quantify (Broviika & Hansen, 2017).

Hansen is currently the David Rockefeller Distinguished Service Professor of Economics and Statistics at the University of Chicago, and he doubles up as the Director of the Becker Friedman Institute, with the responsibility of chairing the institute’s Academic Research Council (Broviika & Hansen, 2017). Hansen also works, alongside Andrew Lo of MIT, as a co-principal investigator on Macro Financial Modeling Initiative (MFM). The MFM is a research group whose aim is to develop different macroeconomic models with improved connections to financial markets so as to provide better policy tools for controlling various systematic risks to the economy (Broviika & Hansen, 2017).

Hansen also received the Erwin Plein Nemmers Prize in Economics in 2006 from Northwestern University, as well as the CME Group-MSRI Prize in Innovative Quantitative Applications in the year 2008 (Hansen, 2016). Besides, Hansen serves as a member of the National Academy of Sciences, as well as the American Finance Association. He is also the former president of the Econometric Society and current fellow of the American Academy of Arts and Sciences (Broviika & Hansen, 2017). Hansen has delivered several lectures globally, including the presentation of the CORE Nobel Talk at the Université Catholique de Louvain in the year 2016. Lars Peter Hansen holds a bachelor's degree from Utah State University in mathematics and political science. He also holds a doctorate, from the United States-based University of Minnesota, in economics (Hansen, 2016).

Practical Implications of This Research

This research has a broad range of implications to both the current and future researchers in the field of economics. First, it gives an understanding of the various dynamics in economics and creates a challenge to future researchers regarding how best to come up with simpler and straightforward models for analyzing various economic aspects. Additionally, by exploring Hansen's contributions to economics, it becomes easy to conceptualize and comprehend various economic problems, including issues relating to uncertainty, finance, risks, as well as the valuation of assets. This research also provides a theoretical economic phenomena model, which assists learners in analyzing and understanding the price behavior in an economy. That is because, as evident from Hansen’s works, supply and demand are always in equilibrium in the static state.

Additionally, this research encourages learners to become economic investigators so as to study the activities of various industries, individual firms, as well as consumers with the aim of understanding both their economic and social environments. That would, in turn, make learners to apply their discoveries to the real world through the use of various economic dynamics. Besides, this research exhibits the importance of pursuing a profession in the field of economics as it expands student's understanding regarding the concepts of economics and statistics.

This research also plays a pivotal role in improving the learners’’ understanding of economic dynamics analysis through the provision of comprehensive information regarding Hansen's discoveries and contribution to dynamic economics. Also, this research helps in improving the learners' comparative statistics by enabling them to compare Hansen's contributions to economics to those of other economists. Finally, this study encourages students to solve various complex economic problems through the use of different economic models developed by economist Hansen and his co-authors.

Conclusion

Lars Peter Hansen stands as one of the world's best economists, who have made tremendous contributions to the field of economics and statistics. One of Hansen's major contributions to economics was his development of the Generalized Method of Moments (GMM) technique, which made it possible for the testing of complex economic models against empirical data using minimum assumptions. Hansen's discovery of the GMM method resulted in the introduction of simpler and better models in macroeconomics, finance, and labor economics. Besides Hansen has made significant contributions to laying the foundation of new economic theories that better explain how individuals make decisions when they have changing beliefs. Hansen also built upon such theories in explaining some of the fluctuations experienced in macroeconomics and various financial sectors. Hansen, therefore, remains as one of the greatest economists whose works continue to attract the attention of several researchers and learners.

References

Boroviika, J., & Hansen, L. (2017). Term Structure of Uncertainty in the Macroeconomy. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2791881

Campbell, J. (2014). Empirical Asset Pricing: Eugene Fama, Lars Peter Hansen, and Robert Shiller. The Scandinavian Journal Of Economics, 116(3), 593-634. http://dx.doi.org/10.1111/sjoe.12070

Hansen, L. (2016). Risk Pricing over Alternative Investment Horizons. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2102848

Hansen, L., & Sargent, T. (2012). Three types of ambiguity. Journal Of Monetary Economics, 59(5), 422-445. http://dx.doi.org/10.1016/j.jmoneco.2012.06.003

November 23, 2022
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