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A Technical Definition of Uncertainty and the Long-run Non-neutrality of Money


  • Davidson, Paul


A technical definition of uncertainty can be developed if economic observations can be generated by stochastic processes. Uncertainty about the future is then defined in terms of the existence of a nonergodic economic environment. In such an environment, statistics based on either cross-sectional data or on past time-series data do not provide good forecasts of future outcomes, i.e., past evidence does not provide reliable estimates of future results. The problem facing every decisionmaker is to determine whether the phenomena is sufficiently time invariant as to be presumed ergodic or whether nonergodic circumstances are involved. Keynes's use of uncertainty in the discussion of liquidity is compatible with a nonergodic environment. Only in a nonergodic environment do the concepts of money, fixed contracts, and liquidity make sense, and then all existence theorems for general equilibrium are jeopardized. Copyright 1988 by Oxford University Press.

Suggested Citation

  • Davidson, Paul, 1988. "A Technical Definition of Uncertainty and the Long-run Non-neutrality of Money," Cambridge Journal of Economics, Oxford University Press, vol. 12(3), pages 329-337, September.
  • Handle: RePEc:oup:cambje:v:12:y:1988:i:3:p:329-37

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    References listed on IDEAS

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    2. Christopher Adam & David Vines, 2009. "Remaking macroeconomic policy after the global financial crisis: a balance-sheet approach," Oxford Review of Economic Policy, Oxford University Press, vol. 25(4), pages 507-552, Winter.
    3. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    4. Patrick Minford, 2010. "The Banking Crisis: A Rational Interpretation," Political Studies Review, Political Studies Association, vol. 8(1), pages 40-54.
    5. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    6. Dosi, Giovanni & Fagiolo, Giorgio & Roventini, Andrea, 2010. "Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1748-1767, September.
    7. José Gabriel Palma, 2009. "The revenge of the market on the rentiers," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 829-869, July.
    8. Amable, Bruno, 2003. "The Diversity of Modern Capitalism," OUP Catalogue, Oxford University Press, number 9780199261147, June.
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    Cited by:

    1. Eckhard Hein, 2005. "Finanzstruktur und Wirtschaftswachstum - theoretische und empirische Aspekte," IMK Studies 01-2005, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Shyam Gouri Suresh & Mark Setterfield, 2015. "Firm performance, macroeconomic conditions, and “animal spirits” in a Post Keynesian model of aggregate fluctuations," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 38(1), pages 38-63, July.
    3. Fusari, Angelo, 2013. "Radical Uncertainty, Dynamic Competition and a Model of the Business Cycle," MPRA Paper 74015, University Library of Munich, Germany, revised Mar 2013.
    4. Fontana, Giuseppe & Gerrard, Bill, 2004. "A Post Keynesian theory of decision making under uncertainty," Journal of Economic Psychology, Elsevier, vol. 25(5), pages 619-637, October.
    5. Hein, Eckhard & Dodig, Nina & Budyldina, Natalia, 2014. "Financial, economic and social systems: French Regulation School, Social Structures of Accumulation and Post-Keynesian approaches compared," IPE Working Papers 34/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    6. Hein, Eckhard, 2004. "Money, credit and the interest rate in Marx's economic. On the similarities of Marx's monetary analysis to Post-Keynesian economics," MPRA Paper 18608, University Library of Munich, Germany.
    7. Hein, Eckhard, 2016. "Post-Keynesian macroeconomics since the mid-1990s: Main developments," IPE Working Papers 75/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    8. Piero Ferri & Anna Maria Variato, 2007. "Macro Dynamics in a Model with Uncertainty," Working Papers (-2012) 0704, University of Bergamo, Department of Economics.
    9. Stephen Dunn, 2000. "Fundamental Uncertainty and the Firm in the Long Run," Review of Political Economy, Taylor & Francis Journals, vol. 12(4), pages 419-433.
    10. Milan Sojka, 2010. "Monetární politika evropské centrální banky a její teoretická východiska pohledem postkeynesovské ekonomie
      [Monetary Policy of the European Central Bank and Its Theoretical Resources in the View of
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(1), pages 3-19.
    11. Bernard Shull, 1993. "The Limits of Prudential Supervision: Economic Problems, Institutional Failure and Competence," Economics Working Paper Archive wp_88, Levy Economics Institute.
    12. José Eduardo Gómez & Nidia Ruth Reyes, 2002. "El racionamiento del crédito y las crisis financieras," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 4(7), pages 62-75, July-Dece.
    13. repec:mje:mjejnl:v:11:y:2015:i:1:p:107-116 is not listed on IDEAS
    14. Lavoie, Marc, 1992. "Éléments d’analyse d’une synthèse post-classique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 68(4), pages 607-631, décembre.

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