Uncertainty and monetary policy
AbstractThe experience of monetary policy making in an uncertain environment has encouraged increased attention to the concept of model uncertainty, that is, uncertainty as to which is the best model. A particular difficulty has been the need to operationalise the concept in order to yield definitive policy recommendations. If this type of uncertainty is unquantifiable, then a policy rule determined by a single model may not in fact be the best approach; pluralism of method and the exercise of judgement offer a potential solution. A rigorous foundation for such an approach is available in Keynes's philosophical analysis of decision making under uncertainty. It is concluded that more analytical attention needs to be devoted to agents' own model uncertainty, and to judgement. But ultimately the scope for synthesis between the model uncertainty and Keynes uncertainty approaches rests on whether or not the subject matter is such that knowledge of it is best represented by one formal model. Copyright 2004, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 56 (2004)
Issue (Month): 3 (July)
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Other versions of this item:
- Sheila C. Dow, 2003. "Uncertainty and monetary policy," SCEME Working Papers: Advances in Economic Methodology 002/2003, SCEME.
- B4 - Schools of Economic Thought and Methodology - - Economic Methodology
- B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
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- Sheila C. Dow & Dipak Ghosh, 2004. "Variety of Opinion and the Speculative Demand for Money: An Analysis in Terms of Fuzzy Concepts," SCEME Working Papers: Advances in Economic Methodology 007/2004, SCEME.
- Tomáš Otáhal, 2012. "Economic History: What Are The Contributions Of Historical Example To Understanding Of Economic Phenomena?," Politická ekonomie, University of Economics, Prague, vol. 2012(5), pages 679-693.
- Sheila Dow, 2006. "Plurality in economics," SCEME Working Papers: Advances in Economic Methodology 011/2006, SCEME.
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