On Alan Greenspan's Successful Incorporation of the ‘Keynes–Knight’ Approach to Uncertainty and Risk into Monetary Policy
14 Pages Posted: 31 Jul 2018 Last revised: 20 Aug 2018
Date Written: July 12, 2018
Alan Greenspan’s approach to dealing with the problem of uncertainty, as opposed to risk, appears to be extremely close to the approach advocated by J.M. Keynes himself in both the A Treatise on Probability (1921) and General Theory (1936). Greenspan provides an improved, general definition of uncertainty that combines both the ‘Keynesian (Knightian)’ concept of uncertainty and neoclassical view of ‘risk’. Greenspan’s great success in policy making from 1987-2005 can be attributed, at least in part, to his very deep understanding of these two different types of uncertainty and the dangers that can result from a belief that one only need deal with monetary policy risks.
Keywords: Greenspan, Knight, Keynes, uncertainty, risk, monetary policy, Bayesian
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation