Hysteresis and post walrasian economics

Rod Cross, Hugh McNamara, Leonid Kalachev, Alexei V. Pokrovskii

Research output: Contribution to journalArticlepeer-review

Abstract

The "new consensus" dsge (dynamic stochastic general equilibrium) macroeconomic model has microfoundations provided by a single representative agent. In this model shocks to the economic environment do not have any lasting effects. In reality adjustments at the micro level are made by heterogeneous agents, and the aggregation problem cannot be assumed away. In this paper we show that the discontinuous adjustments made by heterogeneous agents at the micro level mean that shocks have lasting effects, aggregate variables containing a selective, erasable memory of the shocks experienced. This hysteresis framework provides foundations for the post-Walrasian analysis of macroeconomic systems.

Original languageEnglish
Pages (from-to)377-401
Number of pages25
JournalDiscrete and Continuous Dynamical Systems - Series B
Volume18
Issue number2
DOIs
StatePublished - Mar 2013

Keywords

  • Hysteresis
  • Macroeconomics

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