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Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics

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  • Masanao Aoki

    (Department of Economics, University of California, Los Angeles)

  • Hiroshi Yoshikawa

    (Faculty of Economics, University of Tokyo)

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    Abstract

    Using a simple stochastic growth model, this paper emonstrates 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 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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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2007/2007cf493.pdf
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    Bibliographic Info

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-493.

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    Length: 22 pages
    Date of creation: May 2007
    Date of revision:
    Handle: RePEc:tky:fseres:2007cf493

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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    2. Aoki, Masanao, 2008. "Thermodynamic limits of macroeconomic or financial models: One- and two-parameter Poisson-Dirichlet models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 66-84, January.
    3. Devroye, Luc, 1993. "A triptych of discrete distributions related to the stable law," Statistics & Probability Letters, Elsevier, vol. 18(5), pages 349-351, December.
    4. Plosser, Charles I, 1989. "Understanding Real Business Cycles," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 51-77, Summer.
    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    6. Sutton, John, 2002. "The variance of firm growth rates: the ‘scaling’ puzzle," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 312(3), pages 577-590.
    7. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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