Idealizing Reduction: The Microfoundations of Macroeconomics
32 Pages Posted: 3 Jun 2008
Date Written: 27 May 2008
Abstract
The dominant view among macroeconomists is that macroeconomics reduces to microeconomics - both in the sense that all macroeconomic phenomena arise out of microeconomic phenomena and in the sense that macroeconomic theory - to the extent that it is correct - can be derived from microeconomic theory. More than that the dominant view believes that macroeconomics should in practice used the reduced microeconomic theory: this is the program of microfoundations for macroeconomics to which the vast majority of macroeconomists adhere. The "microfoundational" models that they actually employ are, however, characterized by another feature: they are highly idealized, even when they are applied as direct characterizations of actual data, which itself consists of macroeconomic aggregates. This paper explores the interrelationship between reductionism and idealization in the microfoundational program and the role of idealization in empirical modeling.
Keywords: idealization, reductionism, microfoundations of macroeconomics, macroeconomics, microeconomics, modeling
JEL Classification: B41, E10
Suggested Citation: Suggested Citation