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Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures

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Author Info
Hawkins, Raymond J.
Aoki, Masanao

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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://www.economics-ejournal.org/economics/discussionpapers/2008-35
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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-35.

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Date of creation: 2008
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Handle: RePEc:zbw:ifwedp:7452

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

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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This page was last updated on 2009-11-27.

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