IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Top-Down versus Bottom-Up Macroeconomics

  • Paul De Grauwe
Registered author(s):

    I distinguish two types of macroeconomic models. The first type are top-down models in which some or all agents are capable of understanding the whole picture and use this superior information to determine their optimal plans. The second type are bottom-up models in which all agents experience cognitive limitations. As a result, these agents are only capable of understanding and using small bits of information. These are models in which agents use simple rules of behavior. These models are not devoid of rationality. Agents in these models behave rationally in that they are willing to learn from their mistakes. These two types of models produce a radically different macroeconomic dynamics. These differences are analyzed in this article. (JEL codes: E10, E32, D83) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://hdl.handle.net/10.1093/cesifo/ifq014
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by CESifo in its journal CESifo Economic Studies.

    Volume (Year): 56 (2010)
    Issue (Month): 4 (December)
    Pages: 465-497

    as
    in new window

    Handle: RePEc:oup:cesifo:v:56:y:2010:i:4:p:465-497
    Contact details of provider: Postal:
    Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK

    Phone: +49 (89) 9224-0
    Fax: 01865 267 985
    Web page: http://cesifo.oxfordjournals.org/
    Email:


    More information through EDIRC

    Order Information: Web: http://www.oup.co.uk/journals

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    2. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc.
    3. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
    4. Adjemian, Stéphane & Darracq Pariès, Matthieu & Moyen, Stéphane, 2007. "Optimal monetary policy in an estimated DSGE for the euro area," Working Paper Series 0803, European Central Bank.
    5. Alexis Anagnostopoulos & Omar Licandro & Italo Bove & Karl Schlag, 2006. "An Evolutionary Theory of Inflation Inertia," Economics Working Papers ECO2006/33, European University Institute.
    6. Alex Brazier & Richard Harrison & Mervyn King & Tony Yates, 2008. "The Danger of Inflating Expectations of Macroeconomic Stability: Heuristic Switching in an Overlapping-Generations Monetary Model," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 219-254, June.
    7. Sydney C. Ludvigson, 2004. "Consumer Confidence and Consumer Spending," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 29-50, Spring.
    8. Jordi Galí & J. David López Salido & Javier Vallés, 2003. "Rule-of-thumb consumers and the design of interest rate rules," Working Papers 0320, Banco de España;Working Papers Homepage.
    9. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    10. LeBaron, Blake & Tesfatsion, Leigh S., 2008. "Modeling Macroeconomies As Open-Ended Dynamic Systems of Interacting Agents," Staff General Research Papers 12973, Iowa State University, Department of Economics.
    11. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
    12. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2008. "New Keynesian Models: Not Yet Useful for Policy Analysis," NBER Working Papers 14313, National Bureau of Economic Research, Inc.
    13. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    14. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316.
    15. Mikhail Anufriev & Tiziana Assenza & Cars Hommes & Domenico Massaro, 0000. "Interest Rate Rules and Macroeconomic Stability under Heterogeneous Expectations," Tinbergen Institute Discussion Papers 09-040/1, Tinbergen Institute.
    16. Branch, William A. & Evans, George W., 2006. "Intrinsic heterogeneity in expectation formation," Journal of Economic Theory, Elsevier, vol. 127(1), pages 264-295, March.
    17. Nelson, E., 1998. "Sluggish inflation and optimizing models of the business cycle," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 303-322, July.
    18. Fabio Milani, 2005. "Expectations, Learning and Macroeconomic Persistence," Working Papers 050608, University of California-Irvine, Department of Economics.
    19. Alan Kirman, 1993. "Ants, Rationality, and Recruitment," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 137-156.
    20. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
    21. Richard Curtin, 2007. "Consumer Sentiment Surveys: Worldwide Review and Assessment," Journal of Business Cycle Measurement and Analysis, OECD Publishing,Centre for International Research on Economic Tendency Surveys, vol. 2007(1), pages 7-42.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:oup:cesifo:v:56:y:2010:i:4:p:465-497. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.