Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics

Masanao Aoki and Hiroshi Yoshikawa

No 2007-49, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Using a simple stochastic growth model, this paper demonstrates that the coefficient of variation of aggregate output or GDP does not necessarily go to zero even if the number of sectors or economic agents goes to infinity. This phenomenon known as non-self-averaging implies that even if the number of economic agents is large, dispersion can remain significant, and, therefore, that we can not legitimately focus on the means of aggregate variables. It, in turn, means that the standard microeconomic foundations based on the representative agent has little value for they are expected to provide us with accurate dynamics of the means of aggregate variables. The paper also shows that non-self-averaging emerges in some representative urn models. It suggests that non-self-averaging is not pathological but quite generic. Thus, contrary to the main stream view, micro-founded macroeconomics such as a dynamic general equilibrium model does not provide solid micro foundations.

Keywords: Micro foundations; Macroeconomics; Non-self averaging phenomena; Power laws (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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https://www.econstor.eu/bitstream/10419/17972/1/dp2007-49.pdf (application/pdf)

Related works:
Journal Article: Non-self-averaging in macroeconomic models: a criticism of modern micro-founded macroeconomics (2012)
Working Paper: Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics (2010)
Working Paper: Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:6807

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