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Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures

  • Aoki, Masanao
  • Hawkins, Raymond

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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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): ()
Pages: 1-21

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Handle: RePEc:zbw:ifweej:7603
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  1. Naylor, Michael J. & Rose, Lawrence C. & Moyle, Brendan J., 2007. "Topology of foreign exchange markets using hierarchical structure methods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 199-208.
  2. Edward S. Knotek & II, 2007. "How useful is Okun's law?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-103.
  3. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 11(1), pages 193-197, September.
  4. Miccichè, Salvatore & Bonanno, Giovanni & Lillo, Fabrizio & N. Mantegna, Rosario, 2003. "Degree stability of a minimum spanning tree of price return and volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 66-73.
  5. James E. Hartley, 1996. "Retrospectives: The Origins of the Representative Agent," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 169-177, Spring.
  6. Bernaschi, Massimo & Grilli, Luca & Vergni, Davide, 2002. "Statistical analysis of fixed income market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 308(1), pages 381-390.
  7. Onnela, J.-P. & Chakraborti, A. & Kaski, K. & Kertész, J., 2003. "Dynamic asset trees and Black Monday," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 247-252.
  8. T. Di Matteo & T. Aste & R. N. Mantegna, 2004. "An interest rates cluster analysis," Papers cond-mat/0401443,
  9. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
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