This book arose from our conviction that the NNS-DSGE approach to the
analysis of aggregate market outcomes is fundamentally flawed. The
practice of overcoming the SMD result by recurring to a fictitious RA
leads to insurmountable methodological problems and lies at the root of
DSGE models' failure to satisfactorily explain real world features, like
exchange rate and banking crises, bubbles and herding in financial
markets, swings in the sentiment of consumers and entrepreneurs,
asymmetries and persistence in aggregate variables, and so on. At odds
with this view, our critique rests on the premise that any modern
macroeconomy should be modeled instead as a complex system of
heterogeneous interacting individuals, acting adaptively and
autonomously according to simple and empirically validated rules of
thumb. We call our proposed approach Bottom-up Adaptive Macroeconomics
(BAM). The reason why we claim that the contents of this book can be
inscribed in the realm of macroeconomics is threefold: i) We are looking
for a framework that helps us to think coherently about the
interrelationships among two or more markets. In what follows, in
particular, three markets will be considered: the markets for goods,
labor and loanable funds. In this respect, real time matters: what
happens in one market depends on what has happened, on what is
happening, or on what will happen in other markets. This implies that
intertemporal coordination issues cannot be ignored. ii) Eventually,
it's all about prices and quantities. However, we are mostly interested
in aggregate prices and quantities, that is indexes built from the
dispersed outcomes of the decentralized transactions of a large
population of heterogeneous individuals. Each individual acts
purposefully, but she knows anything about the levels of prices and
quantities which clear markets in the aggregate. iii) In the hope of
being allowed to purport scientific claims, BAM relies on the assumption
that individual purposeful behaviours aggregates into regularities.
Macro behaviour, however, can depart radically from what the individual
units are trying to accomplish. It is in this sense that aggregate
outcomes emerge from individual actions and interactions.
