The Laboratory for Aggregate Economics (LAEF) was established in July 2005 to conduct research in growth and business cycles in national, or aggregate, economies. This area of macroeconomic research is entitled Quantitative Aggregate Theory. LAEF provides an environment in which to conduct topical research in quantitative aggregate theory by resident and visiting scholars. A goal of such research is a framework in which economic and business policy can be evaluated. Research in this area has the distinct characteristic of introducing people explicitly in the economic models. The models are designed to recognize that people’s decision problems are fully dynamic: rational people need to be forward-looking. LAEF is located in North Hall on the UCSB campus, in the vicinity of the Economics Department.
The key tool used by all macroeconomists, including quantitative aggregate theorists, to model and thus evaluate economic policy is the computational experiment. The computational experiment uses a model that contains millions of people, characterized by their preferences over goods and leisure in the indefinite future, their choices constrained by their budgets. These are the dynamic decision problems faced by people.
The computational experiment also contains thousands of businesses and their aggregate production possibilities. The model is calibrated to the specific economic environment that is being studied. When conducted, the experiment yields time series of the aggregate decisions of the model economy’s people. As the millions of people and thousands of businesses make their decisions over time, the computer records their decisions. We obtain time series as if we were confronted with an actual economy. These time series may be described statistically and compared with analogous statistics from the data for the nations under study. Thus, the driving forces behind business cycles and other aggregate phenomena may be identified.
Throughout the year, LAEF will host conferences and workshops in accordance with, but not limited to, the following format:
• one- to two-week research camps/workshops at which questions and issues crucial to aggregate economics are attacked by resident and visiting scholars on an interactive basis
• two- to three-day conferences at which topical research is formally presented and discussed
Workshops and conferences will be held on the UCSB campus.