Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures

Raymond Hawkins and Masanao Aoki

No 2008-35, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: We show how time-dependent macroeconomic response follows from microeconomic dynamics using linear response theory and a time-correlation formalism. This theory provides a straightforward approach to time-dependent macroeconomic model construction that preserves the heterogeneity and complex dynamics of microeconomic agents. We illustrate this approach by examining the relationship between output and demand as mediated by changes in unemployment, or Okun's law. We also demonstrate that time dependence implies overshooting and how this formalism leads to a natural definition of economic friction.

Keywords: Macroeconomic adjustment process; microeconomic dynamics; aggregation; anelastic relaxation; Okun's law; time-correlation formalism (search for similar items in EconPapers)
JEL-codes: A12 C31 D50 E24 J21 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:7452

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