Implicit Microfoundations for Macroeconomics

35 Pages Posted: 18 Dec 2010

See all articles by Ian P. Wright

Ian P. Wright

The Open University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2008

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.

Keywords: Micro foundations, macroeconomics, aggregation, power laws

JEL Classification: E11, P16, D50, C63, B41, A12

Suggested Citation

Wright, Ian P., Implicit Microfoundations for Macroeconomics (2008). Economics Discussion Paper No. 2008-41, Available at SSRN: https://ssrn.com/abstract=1726698 or http://dx.doi.org/10.2139/ssrn.1726698

Ian P. Wright (Contact Author)

The Open University - Department of Economics ( email )

Walton Hall
Milton Keynes, MK7 6AA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
44
Abstract Views
692
PlumX Metrics