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Implicit Microfoundations for Macroeconomics

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  • Wright, Ian

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.

Suggested Citation

  • Wright, Ian, 2009. "Implicit Microfoundations for Macroeconomics," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-27.
    • Handle: RePEc:zbw:ifweej:7604
    DOI: 10.5018/economics-ejournal.ja.2009-19
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    Cited by:

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    2. Willis, Geoff, 2011. "Why money trickles up – wealth & income distributions," MPRA Paper 30851, University Library of Munich, Germany.
    3. Alan G. Isaac, 2019. "Exploring the Social-Architecture Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 565-589, October.
    4. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
    5. Victor M. Yakovenko, 2012. "Applications of statistical mechanics to economics: Entropic origin of the probability distributions of money, income, and energy consumption," Papers 1204.6483, arXiv.org.
    6. Lavička, H. & Lin, L. & Novotný, J., 2010. "Employment, Production and Consumption model: Patterns of phase transitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1708-1720.

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    More about this item

    Keywords

    Microfoundations; macroeconomics; aggregation; power laws;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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