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Implicit Microfoundations for Macroeconomics

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Author Info
Wright, Ian

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Abstract

A large market economy has a huge number of degrees of freedom with weak microlevel coordination. The 'implicit microfoundations' approach considers this property of micro-level interactions to more strongly determine macro-level outcomes compared to the precise details of individual choice behavior; that is, the 'particle' nature of individuals dominates their 'mechanical' nature. So rather than taking an 'explicit microfoundations' approach, in which individuals are represented as 'white-box' sources of fully-specified optimizing behavior ('rational agents'), we instead represent individuals as 'black box' sources of unpredictable noise subject to objective constraints ('zero-intelligence agents'). To illustrate the potential of the approach we examine a parsimonious, agent-based macroeconomic model with implicit microfoundations. It generates many of the reported empirical distributions of capitalist economies, including the distribution of income, firm sizes, firm growth, GDP and recessions. --

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Publisher 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): 19 ()
Pages: 1-27
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Handle: RePEc:zbw:ifweej:7604

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Related research
Keywords: Microfoundations; macroeconomics; aggregation; power laws;

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References listed on IDEAS
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  1. Rizvi, S Abu Turab, 1994. "The Microfoundations Project in General Equilibrium Theory," Cambridge Journal of Economics, Oxford University Press, vol. 18(4), pages 357-77, August.
  2. Yoshi Fujiwara & Corrado Di Guilmi & Hideaki Aoyama & Mauro Gallegati & Wataru Souma, 2003. "Do Pareto-Zipf and Gibrat laws hold true? An analysis with European Firms," Quantitative Finance Papers cond-mat/0310061, arXiv.org, revised Nov 2003. [Downloadable!]
  3. Aoki, Masanao & Yoshikawa, Hiroshi, 2007. "Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics," Economics Discussion Papers 2007-49, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  4. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September. [Downloadable!] (restricted)
  5. Fu, Dongfeng & Pammolli, Fabio & Buldyrev, Sergey V. & Riccaboni, Massimo & Matia, Kaushik & Yamasaki, Kazuko & Stanley, H. Eugene, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," MPRA Paper 15905, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Quantitative Finance Papers cond-mat/9804100, arXiv.org. [Downloadable!]
  7. T. Di Matteo & T. Aste & S. T. Hyde, 2003. "Exchanges in complex networks: income and wealth distributions," Quantitative Finance Papers cond-mat/0310544, arXiv.org. [Downloadable!]
  8. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Quantitative Finance Papers cond-mat/9702082, arXiv.org. [Downloadable!]
  9. Reed, William J., 2001. "The Pareto, Zipf and other power laws," Economics Letters, Elsevier, vol. 74(1), pages 15-19, December. [Downloadable!] (restricted)
  10. E. Gaffeo & M. Catalano & F. Clementi & D. Delli Gatti & M. Gallegati & A. Russo, 2006. "Reflections on Modern Macroeconomics: Can We Travel Along a Safer Road?," Quantitative Finance Papers physics/0608148, arXiv.org. [Downloadable!]
  11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  12. Makoto Nirei & Wataru Souma, 2007. "A Two Factor Model Of Income Distribution Dynamics," Review of Income and Wealth, Blackwell Publishing, vol. 53(3), pages 440-459, 09. [Downloadable!] (restricted)
  13. Ian Wright, 2008. "The Emergence of the Law of Value in a Dynamic Simple Commodity Economy," Review of Political Economy, Taylor and Francis Journals, vol. 20(3), pages 367-391. [Downloadable!] (restricted)
  14. Adrian A. Dragulescu, 2003. "Applications of physics to economics and finance: Money, income, wealth, and the stock market," Quantitative Finance Papers cond-mat/0307341, arXiv.org, revised Jul 2003. [Downloadable!]
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