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

See all articles by Michael Emmett Brady

Michael Emmett Brady

California State University, Dominguez Hills

Date Written: July 12, 2018

Abstract

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

Brady, Michael Emmett, On Alan Greenspan's Successful Incorporation of the ‘Keynes–Knight’ Approach to Uncertainty and Risk into Monetary Policy (July 12, 2018). Available at SSRN: https://ssrn.com/abstract=3212558 or http://dx.doi.org/10.2139/ssrn.3212558

Michael Emmett Brady (Contact Author)

California State University, Dominguez Hills ( email )

1000 E. Victoria Street, Carson, CA
Carson, CA 90747
United States

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