Imperfect Knowledge

How we can create useful economic theory that recognizes that the future is radically uncertain?

If standard economic theory can’t explain a traffic jam, how can it cope with crises?

Model Ambiguity, Consistent Representations of Market Forecasts, and Sentiment

“The humility to accept that economic propositions cannot be universal would save us from self-defeating arrogance.” Economist Amit Bhaduri adds his perspective to our Experts on Trial discussion.

As part of an International Economy symposium, INET Research Director Tom Ferguson assessed the challenge facing central bankers through the lens of the missing virtues of Dorothy’s travel companions in the Wizard of Oz

Notes from the Institute’s Director of Research on some significant papers and contributions produced in 2016 under the INET rubric 

In the 40th anniversary year of John Kenneth Galbraith’s Age of Uncertainty, the 1970s look remarkably stable in comparison with today’s turbulent world 

The Volcker Alliance has launched a series of new papers with important proposals for reforming financial regulations to guard against future crises 

Past failures, present uncertainty, and a challenging political environment have vastly complicated the central bank’s task, says Institute President Rob Johnson

Like any family reunion, the Jackson Hole Economic Symposium may have been as significant for what was said as it was for what was not discussed

Neither the Rational Expectations Hypothesis nor behavioral finance approaches alone provides an adequate predictor of investor behavior, argues Roman Frydman

Behavioral finance views stock-market investors’ expectations as largely unrelated to fundamental factors. Relying on survey data, this paper presents econometric evidence that fundamentals are a major driver of investors’ expectations.

This paper analyzes what assumptions on formation of expectations are consistent with Minsky’s Financial Instability Hypothesis (FIH) and its corollaries.

A gap between theory and reality has haunted economists.

This essay critically evaluates the benefits and costs of the dominant methodology in macroeconomics, the DSGE approach. Although the approach has led to great progress in some areas, it has also created biases and blind spots in the profession that hold back our understanding and our ability to govern the macroeconomy. There is great scope for progress in macroeconomics by judiciously pushing the boundaries of some of the methodological restrictions imposed by the DSGE approach.