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Title:Top-down versus bottom-up macroeconomics PDF Logo
Authors:De Grauwe, Paul
Issue Date:2010
Series/Report no.:CESifo working paper Fiscal Policy, Macroeconomics and Growth 3020
Abstract: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. I analyze these differences.
Subjects:DSGE-model
imperfect information
heuristics
animal spirits
JEL:E10
E32
D83
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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