Testable Implications of General Equilibrium Theory: A Differentiable Approach

Abstract

We characterize the equilibrium manifold of an economy when initial endowments can be individually observed. We adopt a local, "differentiable" perspective. We derive necessary and sufficient conditions that characterize the equilibrium manifold, and we show that, if these conditions are satisfied, then the economy can be identified. We show, further, that, if only aggregate data are available, observable restrictions vanish. We conclude that the availability of individual data is essential for the derivation of testable consequences of the general equilibrium construct.

Keywords: Aggregation, Equilibrium, Identification, Testability

JEL Classification: D10, D50