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.
Relaxing Rationality
Both Microeconomics and Macroeconomics like to model agents as very sophisticated, with a common understanding of all elements of their environment, and perfectly anticipating the future. There are alternative ways to model behavior, mostly researched in Microeconomics with lots of potential of applying this to Macroeconomics. There are evolutionary and learning theories that model agents without common knowledge who learn over time (see work of Anna Ania and Karl Schlag). Behavioral Economics looks at psychologically motivated and experimentally funded behavior (see work of Wieland Müller and Jean Robert Tyran). The robust learning approach searches for rules that are good in many environments (see work of Karl Schlag).