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Implicit Microfoundations for Macroeconomics

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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.

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Ian Wright

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