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Testable implications of general equilibrium theory: A differentiable approach


Kübler, Felix; Chiappori, Pierre-Andre; Ekeland, I; Polemarchakis, Herakles (2004). Testable implications of general equilibrium theory: A differentiable approach. Journal of Mathematical Economics, 40(1-2):105-119.

Abstract

Is general equilibrium theory empirically testable? Our perspective on this question differs fromthe standard, Sonnenschein–Debreu–Mantel (SDM) viewpoint. While the SDM tradition considersaggregate (excess) demand as a function of prices, we suppose that what is observable is the equilibriumprice vector as a function of the fundamentals of the economy.We apply this perspective to anexchange economy where equilibrium prices and individual endowments are observable.We derivenecessary and sufficient conditions that characterize the equilibrium prices, as functions of initialendowments. Furthermore, we show that, if these conditions are satisfied, then the economy cangenerically be identified. Finally, we show that when only aggregate data are available, observablerestrictions vanish.We conclude that the availability of individual data is essential for the derivationof testable consequences of the general equilibrium construct.

Abstract

Is general equilibrium theory empirically testable? Our perspective on this question differs fromthe standard, Sonnenschein–Debreu–Mantel (SDM) viewpoint. While the SDM tradition considersaggregate (excess) demand as a function of prices, we suppose that what is observable is the equilibriumprice vector as a function of the fundamentals of the economy.We apply this perspective to anexchange economy where equilibrium prices and individual endowments are observable.We derivenecessary and sufficient conditions that characterize the equilibrium prices, as functions of initialendowments. Furthermore, we show that, if these conditions are satisfied, then the economy cangenerically be identified. Finally, we show that when only aggregate data are available, observablerestrictions vanish.We conclude that the availability of individual data is essential for the derivationof testable consequences of the general equilibrium construct.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 January 2004
Deposited On:30 Jul 2012 13:17
Last Modified:05 Apr 2016 15:48
Publisher:Elsevier
ISSN:0304-4068
Publisher DOI:https://doi.org/10.1016/j.jmateco.2003.11.002
Official URL:http://www.sciencedirect.com/science/article/pii/S0304406803001150
Other Identification Number:merlin-id:6962

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