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The macroeconomics of radical uncertainty

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  • Roos, Michael W. M.

Abstract

Macroeconomics must take radical uncertainty into account, if it aims at contributing to the solution of serious real-world problems such as climate change. Allowing for radical uncertainty must happen at two levels: the level of modeling and the level of the scientifi c discipline. I argue that the complexity approach which sees the economy as a complex adaptive system is better suited to deal with radical uncertainty than the mainstream DSGE approach. I review a number of agent-based models that are promising starting points to incorporate radical uncertainty into macroeconomics. Discussing the examples of the fi nancial crisis and climate change, I establish why methodological monism is dangerous and why macroeconomics needs more pluralism and openness towards other scientifi c approaches. Radical uncertainty and the complexity approach have important implications for macroeconomic policy and the advice that economists can give to policy makers. Under radical uncertainty it does not make sense to look for optimal policies.

Suggested Citation

  • Roos, Michael W. M., 2015. "The macroeconomics of radical uncertainty," Ruhr Economic Papers 592, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:592
    DOI: 10.4419/86788687
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    1. Complexity, & BBC bias
      by chris in Stumbling and Mumbling on 2016-01-25 20:07:40
    2. Why Is Macro So Hard? Bias Against Emergence and Bias Against Understanding
      by Dave in voluntaryXchange on 2019-06-27 18:21:00

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    More about this item

    Keywords

    complexity economics; agent-based modeling; complex adaptive systems; non-linear dynamics; climate change; pluralism;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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