Abstract

Federal Reserve Chairman Alan Greenspan inaugurated the Haas Annual Business Faculty Research Dialogue at the University of California, Berkeley, on September 4, 1998. In this article, the chief architect of U.S. monetary policy acknowledges the unpredicted and somewhat inexplicable "new" features of the economy. He also lays out some enduring lessons from the old economy. One of those lessons is that expectations about the future inevitably hold sway in the markets for both financial capital and physical capital. Investment inherently turns on expectations about the sizes and risks of profit and loss. These expectations reflect not only data but also human psychology.