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Keynesian uncertainty and the shaky foundations of statistical risk assessment models

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  • Alessandro Roncaglia

    () (Sapienza University of Rome)

Abstract

With the financialization of the economy, increasing reliance has been put on statistical models for derivatives pricing and for risk assessment in the day-to-day business of financial operators as well as in financial regulation. This practice had already been criticized from many quarters and on different accounts before the crisis, but these criticisms were simply ignored by the prevailing consensus. This work reconsiders such criticisms from a different standpoint: though they are justified, they could have been put forward in even stronger terms had they relied on Keyness work on probability and his notion of uncertainty. I shall thus focus on the conceptual views underlying statistical risk assessment techniques rather than on the techniques in themselves. Finally, I set out some policy implications for regulation.

Suggested Citation

  • Alessandro Roncaglia, 2012. "Keynesian uncertainty and the shaky foundations of statistical risk assessment models," PSL Quarterly Review, Economia civile, vol. 65(263), pages 437-454.
  • Handle: RePEc:psl:pslqrr:2012:45
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/10197/10086
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    References listed on IDEAS

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    1. Alessandro Roncaglia, 2009. "Keynes and probability: An assessment," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 16(3), pages 489-510.
    2. Forni, Mario & Lippi, Marco, 1997. "Aggregation and the Microfoundations of Dynamic Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198288008.
    3. Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, number 9780521096720.
    4. Carlo D'Ippoliti & Alessandro Roncaglia, 2011. "L'Italia: una crisi nella crisi," Moneta e Credito, Economia civile, vol. 64(255), pages 189-227.
    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Danielsson, Jon, 2002. "The emperor has no clothes: Limits to risk modelling," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1273-1296, July.
    7. Francesco cannata & Simone Casellina & Gregorio Guidi, 2012. "Inside the labyrinth of Basel risk-weighted assets: how not to get lost," Questioni di Economia e Finanza (Occasional Papers) 132, Bank of Italy, Economic Research and International Relations Area.
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    Cited by:

    1. Mario Tonveronachi & Elisabetta Montanaro, 2012. "Financial re-regulation at a crossroads: How the European experience strengthens the case for a radical reform built on Minsky's approach," PSL Quarterly Review, Economia civile, vol. 65(263), pages 335-383.
    2. Alessandro Roncaglia, 2014. "Teoria dell'occupazione: due impostazioni a confronto," Moneta e Credito, Economia civile, vol. 67(267), pages 243-270.
    3. Carlo D'Ippoliti, 2012. "Josef Steindl: Introduzione: sulle cause reali della crisi finanziaria (Introduction: on the real causes of the financial crisis)," Moneta e Credito, Economia civile, vol. 65(260), pages 279-292.
    4. Elisabetta Montanaro, 2013. "Regole di Basilea e modelli di vigilanza: quale convergenza? (Basel rules and supervisory models: What convergence?)," Moneta e Credito, Economia civile, vol. 66(264), pages 415-442.
    5. Rainer Masera, 2014. "CRR/CRD IV: the trees and the forest," PSL Quarterly Review, Economia civile, vol. 67(271), pages 381-422.
    6. Alessandro Roncaglia, 2014. "The theory of employment: two approaches compared," PSL Quarterly Review, Economia civile, vol. 67(270), pages 241-268.
    7. Mario Tonveronachi, 2013. "De-globalising bank regulation," PSL Quarterly Review, Economia civile, vol. 66(267), pages 371-385.
    8. repec:psl:moneta:2017:41 is not listed on IDEAS

    More about this item

    Keywords

    risk assessment; probability; uncertainty; financial regulation;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian

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