Quantitative Aggregate Theory is an approach to macroeconomic dynamics over time. This theory was developed, in part, by Finn Kydland of Carnegie-Melon University, for which he received the Nobel Prize in economics in 2004. Among many other things, its basic approach is to model, over time, changes in household preferences against changes in both labor and how labor is applied to capital.
Basics
Kydland stresses how important computer regression models are in creating artificial economic scenarios that would be prohibitively expensive in the real world. The model Kydland uses is one that deals with changes in consumer preference and how these preferences alter how capital is used at different levels of technology. Variables in these models are almost endless. They include risk-aversion, budget constraints, foreign competition, taxes and regulation, the age of the average citizen, wage rates, levels of poverty and anything else that affects how preferences are translated into production. Until the late 1980s, models of economics failed to make proper predictions in this complex arena.
Labor
Kydland's approach deals with labor and how it "works on" capital. In a society, such as the U.S., that is seeing an aging population, wages have a tendency to flatten, and the average worker is now older than elsewhere in the world. This alters how capital is utilized and, more specifically, how capital responds to changes in consumer preferences. Speaking broadly, computer simulations are the only things that can manipulate the huge number of variables that actually take the individual seriously in the social sciences while still using aggregate measures.
Individuals
The individual is ignored in social science, since all is based on aggregate social forces. "Demand" is an aggregate figure because it takes consumer preferences as a single object. However, households are different, workers who produce goods are different, and therefore, how both consumers and labor are defined varies widely over time and geography. The concept of "aggregate" has been changed here to deal with actual, individual decision-making both at the household and at the company level. The older, simpler, "homogenous" variables are gone -- they have failed.
Aggregates
Older aggregate theories have failed because they did not account for individual differences. This can still be done, but it takes much time and powerful software to model properly. Households respond to the business cycle differently, while labor produces goods differently depending on age, education and their own preferences for the future. Modeling this is the basis of Quantitative Aggregate Theory as developed by Kydland.
