Re: Uncertainty and Liquidity Preference

[Paul Davidson <pdavidson@xxxxxxx>]

At 11:33 AM 7/12/99 +1000, you wrote:
>
>"Fundamental" uncertainty does not rule out inertia (today is still the
best predictor of tomorrow's conditions) but it implies non-stationarity
(the standard deviation of a prediction increases without limit as the time
from the last empirical data point increases).  Dixit uses a geometric
random walk to illustrate this and to derive some analytic solutions, but a
random walk is not the only nonstationary model by any means.


Unfortunately this is not quite correct.  Non stationary is a sufficient
but not a necessary condition for nonergodicity.  There are some
stationary processes that are nonergodic -- e.g., linit cycles. e.g., Hicks
multiplier-accelorator model with ceilings and floors apparently is
nonergodic.  Also see Malnvaud's fisrt edition of his ECONOMETRICS, page 402.



Npote that Ted also wrote:

> Notice that rational entrepreneurs would deal with the invariant fact of
> fundamental uncertainty not by holding money but by carrying on business as
> "a way of life".
>

Ted, is that why Keynes "rational entrepreneurs" had "animals spirits"
according to Keynes??

Paul
>
Paul Davidson
Holly Chair of Excellence in Political Economy
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennesseee 37996-0550
email: Pdavidson@xxxxxxx;
phone: (423)974-4221;    fax: (423) 974-1686
http://econ.bus.utk.edu/Davidson.html