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Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures

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  • Aoki, Masanao
  • Hawkins, Raymond

Abstract

We show how time-dependent macroeconomic response follows from microeconomic dynamics using linear response theory and a time-correlation formalism. This theory provides a straightforward approach to time-dependent macroeconomic model construction that preserves the heterogeneity and complex dynamics of microeconomic agents. We illustrate this approach by examining the relationship between output and demand as mediated by changes in unemployment, or Okun's law. We also demonstrate that time dependence implies overshooting and how this formalism leads to a natural definition of economic friction. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2009-17
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File URL: http://econstor.eu/bitstream/10419/27537/1/economics_2009-17.pdf
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): 17 ()
Pages: 1-21

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Handle: RePEc:zbw:ifweej:7603

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Keywords: Macroeconomic adjustment process; microeconomic dynamics; aggregation; anelastic relaxation; Okun's law; time-correlation formalism;

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Cited by:
  1. Hiroshi Iyetomi & Yasuhiro Nakayama & Hideaki Aoyama & Yoshi Fujiwara & Yuichi Ikeda & Wataru Souma, 2009. "Fluctuation-Dissipation Theory of Input-Output Interindustrial Correlations," Papers 0912.1985, arXiv.org, revised Nov 2010.

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