Answers are grounded in this paper and cite their sources.
Theoretical analysis contrasts supply shock transmission in watch and cloud macroeconomic models, suggesting implications for forecasting accuracy.
We argue that the mainstream macroeconomic models (DSGE-models) are models that operate like “watches”, while behavioural macroeconomic models operate like “clouds”. We define what this means. We contrast the predictions these two simple canonical macroeconomic models make about the transmission of supply shocks. We find that in the cloud model the fog surrounding the transmission of these shocks is much denser than in the watch model, making it difficult to make conditional forecasts.
No takes yet. Share an insight, caveat, or question.
Grauwe et al. (2026) studied this question.
Synapse has enriched 10 related papers. Consider them for comparative context: