A representative agent fears that his model, a continuous time Markov process with jump and diffusion components, is misspecified and therefore uses robust control theory to make decisions. Under the decision maker's approximating model, cautious behavior puts adjustments for model...

We recalibrate den Haan, Haefke, and Ramey's matching model to incorporate our preferred specification of "turbulence" as causing distinct dynamics of human capital after voluntary and involuntary job losses. Under our calibration, with high unemployment benefits, an increase in turbulence...