Discussion Paper
No. 2008-37 | December 10, 2008
Masanao Aoki and Hiroshi Yoshikawa
The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory

Abstract

The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics.Paper submitted to the special issue “Reconstructing Macroeconomics”

JEL Classification:

D50, E50, J64

Links

Cite As

[Please cite the corresponding journal article] Masanao Aoki and Hiroshi Yoshikawa (2008). The Nature of Equilibrium in Macroeconomics: A Critique of Equilibrium Search Theory. Economics Discussion Papers, No 2008-37, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2008-37


Comments and Questions



Anonymous - Referee Report
February 09, 2009 - 09:05
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Anonymous - Referee Report
February 11, 2009 - 09:16
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