Aggregation of Variables in Dynamic Systems

In many problems of economic theory, the general Walrasian system and its more modern dynamic extensions are relatively barren of results for macroeconomics and economic policy.

Abstract

In many problems of economic theory we need to use aggregates. The general Walrasian system and its more modern dynamic extensions are relatively barren of results for macroeconomics and economic policy. Hence, in our desire to deal with such questions we use highly aggregated systems by sheer necessity, often without having much more than the same necessity as our justification. Perhaps the most important result to date for justifying aggregation under certain circumstances is the Lange-Hicks1 condition, about which we shall say more later.