A Fallacy of Composition
AbstractThe representative-agent framework has endowed macroeconomists with powerful microeconomic tools. Unfortunately, it has also blurred the distinction between statements that are valid at the individual level and those that apply to the aggregate. In this paper, the author argues that probability theory puts strong restrictions on the joint behavior of a large number of units that are less than fully synchronized. Many fallacies arise from disregarding these restrictions. For example, asymmetric factor adjustment costs at the firm level need not imply asymmetric responses of aggregate employment flows to positive and negative shocks. Copyright 1992 by American Economic Association.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 82 (1992)
Issue (Month): 5 (December)
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- Steve J. Davis & John Haltiwanger, 1991.
"Gross Job Creation, Gross Job Destruction and Employment Reallocation,"
NBER Working Papers
3728, National Bureau of Economic Research, Inc.
- Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
- Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
- Kuran, Timur, 1983. "Asymmetric Price Rigidity and Inflationary Bias," American Economic Review, American Economic Association, vol. 73(3), pages 373-82, June.
- Tsiddon, Daniel, 1991. "On the Stubbornness of Sticky Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 69-75, February.
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