Of course, a true Bayesian would assume that people would be able to construct subjective probabilities, and their behaviour would be governed by those beliefs. But Keynes (1936) made much of the pervasive nature of uncertainty in his explanation of business cycles because of the instability of those subjective probabilities. Occasional sharp changes in expectations could, and did, result. That is exactly what happened in the Autumn of 2008, with the sudden and synchronous collapse in business confidence around the world. So the behaviour of economies depends in part upon the beliefs about future events held by the various players: consumers, businesses and governments. Outcomes are endogenous to beliefs about the likelihoods of the outcomes. And in some contexts there may be selffulfilling equilibria. Sudden shifts in beliefs are particularly relevant when many decision-makers interact. The behaviour of a bank’s depositors has many equilibria, each of which depends upon beliefs about whether other depositors are likely to run on the bank. Changes in perceptions of uncertainty may be transmitted rapidly, and amplified, with the potential to affect behaviour in a coordinated way. 4 A restaurant may be much busier than an identical competitor if the first customers of the evening dine there and the next customers suspect the first may know something they don’t, and so follow, with others subsequently joining the herd. The reverse may occur on the following evening. Disentangling the incremental role of shifts in beliefs is often difficult.
François Villeroy de Galhau: Monetary policy in the face of the Covid crisis Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, to the Société d’économie politique, Paris, 25 May 2020. * * *  Ladies and gentlemen, I am very happy to join you today for this discussion, which although virtual, will be very real in terms of the strength of the ideas put forward. And I would like to extend my warm thanks to your Chairman Denis Ferrand for his kind invitation. The crisis we are living through is without precedent, in terms both of its brutality and its scale. In the face of this unparalleled storm and the uncertainty it is creating, central banks have responded and innovated, and they need to remain alert. These actions are sparking debate, and raising profound questions about monetary policy. In these troubled times, I think I should start with a reminder of the two anchors that moor our decision-making. I shall then turn to our current strategy, in order to clarify the order of priority for our objectives, and therefore for our tools. I. Two vital and permanent anchors: the mandate and independence In these turbulent times, the ECB is held fast by two crucial and permanent anchors: its price stability mandate and its independence.