Microfoundations A Critical Inquiry

All economists are familiar with the division of the subject into microeconomics and macroeconomics. However, few economists are able to give an accurate account of what distinguishes micro and macro. The increasing interest in the `microfoundations of macroeconomics' has typically attracted those who feel that economics is about the rational behaviour of individuals and who regard macro propositions as a consequence of the intentions of individuals. As a result, `microfoundations' have come to be synonymous with theories of individual behaviour. However, Maarten Janssen argues that it is microeconomics' concern with the functioning of markets that underlies theories of microfoundations. This claim is substantiated by an analysis of the aggregation problem, of the foundations of equilibrium theories, of the rational expectations hypothesis, and of a model from the New Keynesian literature.

Preface Introduction Part 1: Micro and Macro in Economics: Definitions and Relations 1. The Meaning of Micro and Macro in Economics 2. Individual Behaviour and Aggregate Relations 3. General Equilibrium Analysis and Macroeconomics: Alternative Programs 4. Economics and the Real World Part 2: Aggregation Issues 5. Aggregation, Analogy and the Representative Agent 6. On the Probability Distribution of Aggregate Demand Part 3: Equilibrium Foundations for Market Equilibrium 7. Individualistic Foundations for Market Equilibrium 8. The Individual Rationality of Rational Expectations Part 4: Microfoundations 9. What Is This Thing Called Foundations? 10. Rationalizable Animal Spirits Conclusion Notes References

Janssen, Maarten

This argues that it is really microeconomics' concern with the functioning of markets that underlies the theories which attempt to provide macroeconomics with microfoundations.