The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory

11 Pages Posted: 18 Dec 2010

See all articles by Masanao Aoki

Masanao Aoki

University of California, Los Angeles (UCLA) - Department of Economics

Hiroshi Yoshikawa

Rissho University

Date Written: 2009

Abstract

The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics. --

Keywords: Equilibrium, search theory, productivity dispersion, power-law, non-self-averaging

JEL Classification: D50, E50, J64

Suggested Citation

Aoki, Masanao and Yoshikawa, Hiroshi, The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory (2009). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009-37, Available at SSRN: https://ssrn.com/abstract=1726868 or http://dx.doi.org/10.5018/economics-ejournal.ja.2009-37

Masanao Aoki (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Hiroshi Yoshikawa

Rissho University ( email )

4-2-16, Osaki, Shinagawa-ku
Tokyo 141-8802
Japan
+81334927529 (Phone)

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