A.In referring to the 'animal spirits' of investors, Keynes had already pointed to a basic distinction between 'calculable' and 'non-calculable' risk or 'ambiguity'.The purpose of this paper is to discuss the effects of ambiguity on the public's expectations about inflation and the impact this may have on central bank policy. We consider the case where ambiguity is caused by a lack of predictability in monetary policy. The effects of this loss of predictability are addressed in the setting of a Barro and Gordontype framework, featuring a short run aggregate supply curve. Within this framework we distinguish between 'strategic ambiguity' faced by the public sector and 'state ambiguity' faced by the central bank.The main results are as follows. Ambiguity about monetary policy can be characterised as a loss of central bank credibility. When the public is pessimistically inclined, its consequences are excessive expectations of inflation and a national income below its natural rate. This result is obtained both in the context of 'rules' and of 'discretion', although the impact of ambiguity is more pronounced in the latter case.If the public is optimistic with respect to the monetary policy of the central bank, a lack of predictability has no impact on the inflation expectations of the public. The expected rate of inflation is the same as in the absence of ambiguity.The results are illustrated by considering the effect of initial ambiguity about the European Central Bank, the efforts of the central banks of the EU-accession countries to establish credibility, and the impact of EU-accession on the predictability of their monetary policies. A final illustration is the potential impact of a glorification of the Federal Reserve and its chairman, Alan Greenspan. JEL Classification Codes: D81, E52, E58.

The consequences of ambiguity for partnerships are addressed. Partnerships with symmetric linear production functions are analysed in a Choquet Expected Utility (CEU)-framework. Nash equilibrium in pure strategies is extended to CEU-games. A class of sharing rules are proposed that make constructive use of strategic ambiguity in partnerships. Results on ex-ante e±ciency and ex-post e±ciency of the outcomes are presented.

This paper discusses the potential benefits of monetary policy rules for transition economies [TEs]. It is argued that the nominal interest rate may fail to be the appropriate instrument in such rules. One reason is the amount of non-calculable political and economic risk inherent in TEs. These risks lead to a significant and volatile ambiguity premium in the interest rate over and above the normal risk premium, which makes the real equilibrium interest rate difficult to measure. Therefore, a monetary aggregate like the money base may be more appropriate as the instrument for monetary policy rules in TEs.

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