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Uncertainty and monetary policy

Author

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  • Sheila C. Dow

    (Department of Economics, University of Stirling, Scotland)

Abstract

The 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; pluralism of method and the importance of judgement offer a potential solution. The literature building on Keynes’s theory of probability, in the meantime, has been refining the concept of uncertainty as something other than complete ignorance, although still falling short of quantifiability. This line of reasoning too supports pluralism of method and the importance of judgement. The purpose of this paper is to consider these different approaches taken to uncertainty for possibilities of synergy. Crucial issues are whether or not the goal is still to identify one best model, and how far model uncertainty is to be applied to individual decision-making.

Suggested Citation

  • Sheila C. Dow, 2003. "Uncertainty and monetary policy," SCEME Working Papers: Advances in Economic Methodology 002/2003, SCEME.
  • Handle: RePEc:sti:wpaper:002/2003
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    File URL: http://www.sceme.org.uk/wps/SCEME002_DowS_UandMP_2003.pdf
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    Cited by:

    1. Tomáš Otáhal, 2012. "Ekonomická historie: čím přispívá historický příklad k pochopení ekonomických jevů?
      [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.
    2. Charemza, Wojciech & Ladley, Daniel, 2016. "Central banks’ forecasts and their bias: Evidence, effects and explanation," International Journal of Forecasting, Elsevier, vol. 32(3), pages 804-817.
    3. Giuseppe Fontana & Bill Gerrard, 2006. "The future of Post Keynesian economics," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(236), pages 49-80.
    4. Finn Olesen, 2010. "Uncertainty, bounded rationality and post-Keynesian Macroeconomics," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 7(1), pages 109-124.
    5. Sheila Dow & Guðrún Johnsen & Alberto Montagnoli, 2015. "A critique of full reserve banking," Working Papers 2015008, The University of Sheffield, Department of Economics.

    More about this item

    Keywords

    model-uncertainty; pluralism; Keynes;

    JEL classification:

    • 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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