Implicit Microfoundations for Macroeconomics

29 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: 2009

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. --

Keywords: Microfoundations, macroeconomics, aggregation, power laws

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

Suggested Citation

Wright, Ian P., Implicit Microfoundations for Macroeconomics (2009). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 3, 2009-19, Available at SSRN: https://ssrn.com/abstract=1726848 or http://dx.doi.org/10.5018/economics-ejournal.ja.2009-18

Ian P. Wright (Contact Author)

The Open University - Department of Economics ( email )

Walton Hall
Milton Keynes, MK7 6AA
United Kingdom

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