Microeconomic Structure Determines Macroeconomic Dynamics. Aoki Defeats the Representative Agent

Microeconomic foundations of representative agent models by means of ultraproducts

This paper builds on a recent proposal for microeconomic foundations for “representative agents”. Herzberg [12] constructed a representative utility function for finite-dimensional social decision problems and since the decision problems of macroeconomic theory are typically infinite-dimensional, Herzberg’s original result is insufficient for many applications. We therefore generalise his resul...

Macroeconomic Evidence and Microeconomic Foundations

Macroeconomic forecasts and microeconomic forecasters

In the presence of principal-agent problems, published macroeconomic forecasts by professional economists may not measure expectations. Forecasters may use their forecasts in order to manipulate beliefs about their ability. I test a cross-sectional implication of models of reputation and information-revelation. I find that as forecasters become older and more established, they produce more radi...

Microeconomic Origins of Macroeconomic Tail Risks

We document that even though the normal distribution is a good approximation to the nature of aggregate fluctuations, it severely underpredicts the frequency of large economic downturns. We then provide a model that can explain these facts simultaneously. Our model shows that the propagation of microeconomic shocks through input-output linkages can fundamentally reshape the distribution of aggr...

Price Rigidity: Microeconomic Evidence and Macroeconomic Implications

We review recent evidence on price rigidity from themacroeconomics literature and discuss how this evidence is used to inform macroeconomic modeling. Sluggish price adjustment is a leading explanation for the large effects of demand shocks on output and, in particular, the effects of monetary policy on output. A recent influx of data on individual prices has greatly deepenedmacroeconomists’ und...