29 Pages Posted: 20 Jan 2015 Last revised: 13 Jun 2016
Date Written: January 19, 2015
The DSGE framework treats the micro-macro relationship as additive, which supports a horizontal type of analysis wherein macro variables interact directly with one another. This framework yields a steady rate of growth when exogenous shocks are absent. It leads in turn to an examination of whether there are monetary rules that will calm the turbulence that results from nominal shocks. In contrast to the DSGE framework, this paper explores an ecological approach to the micro-macro relationship. This framework entails a vertical form of analysis where there is causal interaction between micro and macro variables. In place of systemic equilibrium, the ecological micro foundation reflects processes of spontaneous ordering where there is interdependence between macro-level variables and micro-level activities. This micro-macro interdependence leads in turn to different insight into and concerns about the ability of monetary rules to control nominal shocks.
Keywords: NGDP targeting; complex systems theory; micro-foundations; time and economics; non-equilibrium theory; entrepreneurship; economic kaleidics; recessions as economically productive
JEL Classification: B40, D51, E32, E42, E52
Suggested Citation: Suggested Citation
Veetil, Vipin P. and Wagner, Richard E., Alternative Micro-Foundations for Macro Theory: Additive and Ecological (January 19, 2015). GMU Working Paper in Economics No. 15-02. Available at SSRN: https://ssrn.com/abstract=2552321 or http://dx.doi.org/10.2139/ssrn.2552321
By Thomas Hogan