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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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  • Aoki, Masanao & Hawkins, Raymond, 2009. "Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-21.
    • Handle: RePEc:zbw:ifweej:7603
    DOI: 10.5018/economics-ejournal.ja.2009-17
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    Cited by:

    1. Raymond Hawkins, 2015. "Okun’s law and anelastic relaxation in economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(1), pages 151-161, April.
    2. 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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    More about this item

    Keywords

    Macroeconomic adjustment process; microeconomic dynamics; aggregation; anelastic relaxation; Okun's law; time-correlation formalism;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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