The usual robust control framework in discrete time: some interesting results

By applying robust control the decision maker wants to make good decisions when his model is only a good approximation of the true one. Such decisions are said to be robust to model misspecification. In this paper it is shown that the application of the usual robust control framework in discrete time problems is associated with some interesting, if not unexpected, results. Results that have far reaching consequences when robust control is applied sequentially, say every year in fiscal policy or every quarter (month) in monetary policy. This is true when unstructured uncertainty à la Hansen and Sargent is used, both in the case of a “probabilistically sophisticated” and a non-“probabilistically sophisticated” decision maker, or when uncertainty is related to unknown structural parameters of the model.