Reconstructing Macroeconomics: A Perspective from by Masanao Aoki

By Masanao Aoki

The authors deal with macroeconomic versions as composed of huge numbers of micro-units or brokers of numerous forms and explicitly talk about stochastic dynamic and combinatorial points of interactions between them. In mainstream macroeconomics sound microfoundations for macroeconomics have intended incorporating refined intertemporal optimization by means of consultant brokers into types. optimum progress conception, as soon as intended to be normative, is now taught as a descriptive concept in mainstream macroeconomic classes. In neoclassical equilibria versatile costs led the economic system to the nation of complete employment and marginal productivities are all equated. Professors Aoki and Yoshikawa contrariwise exhibit that such equilibria aren't attainable in economies with a lot of brokers of heterogeneous forms. They hire a suite of statistical dynamical instruments through continuous-time Markov chains and statistical distributions of fractions of brokers via varieties on hand within the new literature of combinatorial stochastic strategies, to reconstruct macroeconomic types.

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First Class of Methods: Stochastic Dynamics 29 emphasizing the importance of proper aggregation for understanding the behavior of the macroeconomy. The experiences in disciplines outside economics such as physics, population genetics, and combinatorial stochastic processes that deal with a large number of interacting entities amply demonstrate that details of specification of optimizing microeconomic agents (units) frequently diminish as the number of agents becomes very large. Only certain key features or parameters such as correlations among agents matter in determining aggregate behavior.

However, as we argued above, the same story does not necessarily hold true for different industries. ” An obvious implication of the logistic growth of an individual product/industry is that the economy enjoys high growth if it successfully keeps introducing new products or industries that temporarily enjoy Introduction: A New Approach to Macroeconomics 23 a high growth in demand. In this model, innovation or “technical progress” leads to the introduction of new commodities or sectors that enjoy a high growth in demand, and by so doing sustains the economic growth of the economy as a whole.

The problem of equilibrium selection then disappears; instead, the model provides a possible explanation of fluctuations of the economy (Aoki, 1995). This model will be explained in Chapter 4. 6. Often, a mere aggregation of a large number of stochastic movements of micro units produces a certain macro fluctuation or pattern with no similarity to those of micro units. In such a case, we cannot deduce the behavior of the macro entity from that of the micro unit. This applies not only to natural sciences but also to economics.

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