Research interaction between microeconomics and macroeconomics

Microeconomics and macroeconomics share many common tools, and for a graduate school it is important that the two are taught within the same program. The clearest sign of cooperation between the two areas is that most, if not all, current macroeconomic research has microeconomic foundations. This is not only true for macroeconomic research in general, but also for the research at VGSE. In addition to this general relationship, there are also many important topics that faculty members of both areas are interested in: (i) how does heterogeneous individual behavior translate into aggregate consequences and (ii) consumer search.

Heterogeneous behavior of individual firms and households and the consequence for aggregate economic outcomes

At a more microeconomic level one of Wieland Müller’s research interests lies in explaining heterogeneity in individual decision making and economic outcomes, while an important element in the research of Philipp Schmidt-Dengler is heterogeneity in firm behavior. This relates to the research in macroeconomics, such as Alejandro Cuñat's work on heterogeneous firms in international trade, Monika Merz’s work on heterogeneous firms in labor markets, or Gerhard Sorger’s research on growth models with households that have different time-preference rates. 

Consumer search

The area of consumer search has potentially important applications to macroeconomic issues. For example, recent research shows that consumer search may lead to price stickiness, an important ingredient in many macroeconomic models.  Models in which consumers learn about underlying cost parameters after observing prices has important applications in the area of monetary policy and inflation.  Maarten Janssen and Paul Pichler have already done joint research in this direction and their work has recently been heavily used to understand financial markets.  Wieland Müller and Jean-Robert Tyran’s work in behavioral economics, and especially the latter’s research on money illusion, may be considered for their macroeconomic implications.