Implicit Microfoundations for Macroeconomics

Ian Wright

No 2008-41, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: A large market economy has a huge number of degrees of freedom with weak microlevel coordination. The 'implicit microfoundations' approach assumes this property of micro-level interactions more strongly conditions 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: Micro foundations; macroeconomics; aggregation; power laws (search for similar items in EconPapers)
JEL-codes: A12 B41 C63 D50 E11 P16 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cmp and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:7462

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