SFB 303 Discussion Paper No. A - 569

Author: Hildenbrand, Werner
Title: Schumpeter Lecture
How Relevant are Specifications of Behavioral Relations on the Micro-Level for Modelling the Time Path of Population Aggregates?
Abstract: Academic economists, in particular the micro theorists among them, have spent an enormous amount of time and effort to model "Individual Behaviour". Much less effort has been spent on modelling the aggregate behaviour of large and heterogeneous groups of economic agents.
In this lecture I would like to ask the following question: Do we really need an explicit model of individual behaviour if we are interested in the aggregate activity of a large and heterogeneous group of economic agents? To ask the question more specifically, if we are interested in, say, aggregate demand or the aggregate savings ratio of a large and heterogeneous population of households, do we then need an explicit model of household behaviour? We need to know the relevant explanatory variables and how they determine the aggregates whose change over time we want to explain.
I shall present a theoretical analysis on aggregation. I shall not present an empirical paper even though I shall often refer to data and empirical facts since I strongly believe that economic modeling and data analysis have to go together. I believe in the need of a dialogue between theoretical economic modeling and the analysis of empirical data.
In order to answer the question in the title of my lecture it seems that in aggregation theory of the type presented here the micro-relation only plays a minor role. More important are certain 'invariants'.
These invariants allow to derive a macro-relation and I showed that the coefficients of a first-order approximation can be estimated from cross-section data without knowledge of the micro-relation.
Creation-Date: January 1998
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