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Implicit Microfoundations for Macroeconomics

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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 assumes this property of micro-level interactions more strongly conditions 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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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-41.

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Date of creation: 2008
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Handle: RePEc:zbw:ifwedp:7462

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Related research
Keywords: Micro foundations; macroeconomics; aggregation; power laws;

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Find related papers by JEL classification:
E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Institutional; Evolutionary
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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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. Dongfeng Fu & Fabio Pammolli & S. V. Buldyrev & Massimo Riccaboni & Kaushik Matia & Kazuko Yamasaki & H. E. Stanley, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," Quantitative Finance Papers physics/0512005, arXiv.org. [Downloadable!]
    Other versions:
  3. 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)
    Other versions:
  4. 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:
  5. 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)
  6. 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)
  7. 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)
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  11. 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!]
  12. Reed, William J., 2001. "The Pareto, Zipf and other power laws," Economics Letters, Elsevier, vol. 74(1), pages 15-19, December. [Downloadable!] (restricted)
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