Some Issues on Firm Behaviour in Light of Microeconomic Foundations of Macroeconomics

Abstract

Until some decades ago nobody thought that there was a lack of continuity between micro- and macroeconomics. The neoclassical world functioned very smoothly from an aggregate point of view because only real variables mattered, and short-run maladjustments were considered as nothing more than the temporary illnesses of a wealthy system. But since the 1930s even a superficial observation of the actual world raised serious doubts about the smoothness of economic systems and how they react to partial diseases. Roughly speaking, short-comings between micro- and macroanalysis may be summarised into two broad groups:

• (a) The micro-Walrasian cosmos is not able to give us a valid explanation with which to understand a macro-Keynesian world characterised by equilibria with various degrees of unemployment and even with permanent disequilibria due to the downward rigidities of money wages and prices. The missing link is an explanation of short-run disequilibrium dynamics.

• (b) Aggregate models of growth are not able to explain the facts of an actual growth process. They usually analyse smooth economies with flexible technologies and point out the equilibrium characteristics of an ideal system working, sooner or later, at constant speed. The missing link is an explanation of long-run disequilibrium dynamics.