Discussion Paper

Published as Journal Article »

No. 2008-35 | December 08, 2008

Raymond J. Hawkins and Masanao Aoki

Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures

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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.

Paper submitted to the special issue "Reconstructing Macroeconomics"

JEL Classification

A12 C31 D50 E24 J21

Cite As

Raymond J. Hawkins and Masanao Aoki (2008). Macroeconomic Relaxation: Adjustment Processes of Hierarchical Economic Structures. Economics Discussion Papers, No 2008-35, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2008-35

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