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Non-self-averaging in macroeconomic models: a criticism of modern micro-founded macroeconomics

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  • Masanao Aoki
  • Hiroshi Yoshikawa

Abstract

Using a simple stochastic growth model, this paper demonstrates that the coefficient of variation of aggregate output or GDP does not necessarily go to zero even if the number of sectors or economic agents goes to infinity. This phenomenon known as non-self-averaging implies that even if the number of economic agents is large, dispersion can remain significant, and, therefore, that we can not legitimately focus on the means of aggregate variables. It, in turn, means that the standard microeconomic foundations based on the representative agent has little value for they are expected to provide us with accurate dynamics of the means of aggregate variables. The paper also shows that non-self-averaging emerges in some representative urn models. It suggests that non-self-averaging is not pathological but quite generic. Thus, contrary to the main stream view, micro-founded macroeconomics such as a dynamic general equilibrium model does not provide solid micro foundations.
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  • Masanao Aoki & Hiroshi Yoshikawa, 2012. "Non-self-averaging in macroeconomic models: a criticism of modern micro-founded macroeconomics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 7(1), pages 1-22, May.
    • Handle: RePEc:spr:jeicoo:v:7:y:2012:i:1:p:1-22
    DOI: 10.1007/s11403-012-0088-3
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    2. Imre Kondor & István Csabai & Gábor Papp & Enys Mones & Gábor Czimbalmos & Máté Sándor, 2014. "Strong random correlations in networks of heterogeneous agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(2), pages 203-232, October.
    3. Otto, Christian & Willner, Sven Norman & Wenz, Leonie & Frieler, Katja & Levermann, Anders, 2017. "Modeling loss-propagation in the global supply network: The dynamic agent-based model acclimate," OSF Preprints 7yyhd, Center for Open Science.
    4. Masanao Aoki, 2008. "Dispersion of growth paths of macroeconomic models in thermodynamic limits: two-parameter Poisson–Dirichlet models," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 3(1), pages 3-13, June.
    5. Sorin Solomon & Nataša Golo, 2015. "Microeconomic structure determines macroeconomic dynamics: Aoki defeats the representative agent," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 5-30, April.
    6. Otto, C. & Willner, S.N. & Wenz, L. & Frieler, K. & Levermann, A., 2017. "Modeling loss-propagation in the global supply network: The dynamic agent-based model acclimate," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 232-269.
    7. Da Silva, Sergio, 2009. "Does Macroeconomics Need Microeconomic Foundations?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-11.
    8. Aoki, Masanao & Yoshikawa, Hiroshi, 2009. "The nature of equilibrium in macroeconomics: A critique of equilibrium search theory," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-9.
    9. Wright, Ian, 2009. "Implicit Microfoundations for Macroeconomics," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-27.
    10. Song, Edward, 2014. "Economic Science: From the Ideal Gas Law Economy to Piketty and Beyond," MPRA Paper 57391, University Library of Munich, Germany.
    11. Yuji Aruka & Eizo Akiyama, 2009. "Non-self-averaging of a two-person game with only positive spillover: a new formulation of Avatamsaka’s dilemma," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 4(2), pages 135-161, November.

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