in building consensus around where the economy is and how policy should advance. to lose the big picture in the details is not ideal. the bottom line is that whilst we should acknowledge the contribution our statistical and macroeconomic models make, we must also acknowledge their limitations and make improvements. we must recognize the presence of pervasive uncertainty. we must show humility. there is hope, and an active research agenda. useful insights on how to improve models come from behavioural and evolutionary economics ( expectations, multiple equilibria, the effects of news, and asset market bubbles ) — as well as from the enhancement of models to include commercial banks, credit frictions, and uncertainty. also, central banks have always been concerned with uncertainty and they always tried to take robust decisions. 18 they have also been confronted with the challenge to distinguish between short - term versus long - term, cyclical versus structural developments or deviations of various degrees versus dead ends. the main problem is the difficulty the policy maker faces in distinguishing between objective and subjective uncertainty, and how to cope with the latter. possible solutions to uncertainty are on the one hand to relax the assumption that a single probability number quantifies beliefs and assume that they can account on a set of them. the policy makers then act according to the belief that minimizes the excepted loss. on the other hand the risk aversion of policy makers towards the two types of uncertainties is not the same. allowing for the distinction in the attitude towards uncertainty allows us to evaluate their role and quantify their importance. as already stressed, the crises increased the concern for uncertainty. the research agenda is also high on this topic. 19 5 / 7 bis central bankers'speeches conclusions if it did nothing else, the financial crisis served to remind us all of a few home truths. the economy is a profoundly complex setting. it is bound and shaped by history as well as by cultural and legal norms. if it can at all be conceived of as a model, such a model would have many moving parts and shifting parameters and volatilities. but even then, deep uncertainty inevitably remains – uncertainty about the underlying mechanisms and parameters and the lines of causality between those mechanisms. many economists had in recent years perhaps forgotten that, but as i have argued the study of economics and many practitioners had not. let me be clear, an acknowledgement of uncertainty is not a recipe for nihilism. on the contrary, the ecb has shown great flexibility and ing

faith in the risk - reducing potential of the securitization and a blinkered gaussian mind - set. 14 in short they used models – often of great sophistication – but poorly combined them with judgement and experience. as we noted, many have reached a relatively positive assessment of policy models, and of the re - constructive abilities of the profession. indeed, some others argued that the mistake was actually in not following models ’ prescriptions closely enough. for instance john taylor maintained that during the early 2000s, monetary policy in the us was set looser than that implied by the taylor rule. this, he claimed, caused the build - up of debt and risk - taking, which ultimately led to the onset of the great recession. likewise, michael wicken concluded that “ … the financial crisis was brought about more by a failure to employ modern macroeconomics than by its failings. if used sensibly, it will lead us out of the crisis. ” 15 on the other side, those who criticize the types of macroeconomic models popular at central banks have argued that they mistook beauty for truth and were too complex and opaque to be used quickly. more recently stiglitz posed another question highlighting one important flaw of models : why does the economy not quickly return to full employment, as one would have expected in an equilibrium model? why do we persist in using models with such strongly counterfactual dynamics? more specifically the list of model troubles could include : linearity, rational expectations, complete markets, limited agent heterogeneity and financial imperfections. 16 on a more general perspective, some set the discussion in terms of the fact that some models give the impression of the possibility to fine tune or socially “ engineer ” the economy whereas less standard approaches – also inspired by other disciplines – see the economy rather as an everevolving social system for which one can merely set the broad framework conditions and institutions. this goes back to an old debate started indeed with ludwig von mises, who first discussed the concept of catalaxy, and made popular later on by friedrich hayek who elaborated on that concept and defined it as follows : “ … the order brought about by the mutual adjustment of many individual economies in a market ”. hayek particularly stressed his view in that respect in his lecture to the memory of alfred nobel, the pretence of knowledge in which he forcefully challenged all those who believed that government had the wisdom or ability to successfully plan the