Resource title

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

Resource image

image for OpenScout resource :: Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics

Resource description

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.

Resource author

Masanao Aoki, Hiroshi Yoshikawa

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/17972

Resource license

Adapt according to the presented license agreement and reference the original author.