Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27471 
Year of Publication: 
2008
Series/Report no.: 
Economics Discussion Papers No. 2008-35
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
We show how time-dependent macroeconomic response follows from microeconomic dynamics using linear response theory and a time-correlation formalism. This theory provides a straightforward approach to time-dependent macroeconomic model construction that preserves the heterogeneity and complex dynamics of microeconomic agents. We illustrate this approach by examining the relationship between output and demand as mediated by changes in unemployment, or Okun's law. We also demonstrate that time dependence implies overshooting and how this formalism leads to a natural definition of economic friction.
Subjects: 
Macroeconomic adjustment process
microeconomic dynamics
aggregation
anelastic relaxation
Okun's law
time-correlation formalism
JEL: 
J21
E24
C31
A12
D50
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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