In this book, the authors treat macroeconomic models as composed of large numbers of micro-units or agents of several types and explicitly discuss stochastic dynamic and combinatorial aspects of interactions among them. In mainstream macroeconomics sound microfoundations for macroeconomics have meant incorporating sophisticated intertemporal optimization by representative agents into models. Optimal growth theory, once meant to be normative, is now taught as a descriptive theory in mainstream macroeconomic courses. In neoclassical equilibria flexible prices led the economy to the state of full employment and marginal productivities are all equated. Professors Aoki and Yoshikawa contrariwise show that such equilibria are not possible in economies with a large number of agents of heterogeneous types. They employ a set of statistical dynamical tools via continuous-time Markov chains and statistical distributions of fractions of agents by types available in the new literature of combinatorial stochastic processes, to reconstruct macroeconomic models.
Masanao Aoki is Professor Emeritus in the Department of Economics at the University of California, Los Angeles. Hiroshi Yoshikawa is Professor of Economics at the University of Tokyo.
Preface 1 Masanao Aoki; Preface 2 Hiroshi Yoshikawa; 1. Introduction - a new approach to macroeconomics; 2. The methods - jump Markov processes and random partitions; 3. Equilibrium as distribution - the role of demand in macroeconomics; 4. Uncertainty trap - policy ineffectiveness and long stagnation of the macroeconomy; 5. Slow dynamics of the macro system - no mystery of inflexible prices; 6. Business cycles - an endogenous stochastic approach; 7. Labor market dynamics - a new look at natural unemployment and Okun's law; 8. Demand saturation - creation and economic growth; 9. The types of investors and volatility in financial markets - analyzing clusters of heterogeneous agents; 10. Stock prices and the real macroeconomy - power-law versus exponential distributions.