Recursive Macroeconomic Theory

Recursive methods offer a powerful approach for characterizing and solving complicated problems in dynamic macroeconomics. Recursive Macroeconomic Theory provides both an introduction to recursive methods and advanced material, mixing tools and sample applications. The second edition contains substantial revisions to about half the original material, and extensive additional coverage appears in seven chapters new to this edition. The updated and added material covers exciting new topics that further illustrate the power and pervasiveness of recursive methods. Significant improvements to original chapters include a better treatment of the existence of recursive equilibria, an enhanced account of the supermartingale convergence theorem, and an extended treatment of an optimal taxation problem in an economy in which there are incomplete markets. Completely new coverage in the second edition includes an introductory chapter, which gives an overview of the themes uniting the diverse topics treated throughout the book. Two new chapters offer a self-contained account of the optimal growth model and some of its basic applications in macroeconomics and public finance. Other new chapters cover such topics as how to formulate and compute Stackelberg or Ramsey plans in linear economies, sustainable risk-sharing equilibria without commitment, and the application of recursive contracts to topics in international trade. Most chapters conclude with exercises and the book includes two technical appendixes covering functional analysis and control and filtering. Lars Ljungqvist is Professor of Economics at the Stockholm School of Economics. Thomas J. Sargent is Berkley Professor of Economics and Business at New York University and Senior Fellow at the Hoover Institution."Recursive Macroeconomic Theory thoroughly works through a wide variety of applications of recursive methods to the analysis of central themes in macroeconomics. As Alexander the Great is said to have always kept a copy of the Iliad under his pillow, I think the modern macroeconomist would do well to keep a copy of this excellent work close at hand." --Fernando Alvarez, Professor of Economics, University of Chicago "This revised edition is an excellent resource, both for those interested in state-of-the-art research in macroeconomics and for those anxious to learn the tools that are used to do it." --Wouter J. Denhaan, Professor of Economics, London Business School "With this second edition, Ljungqvist and Sargent have significantly improved and updated what was already the best introduction to modern macroeconomics of the past ten years. Graduate students and researchers will want to keep this book near for its coverage of both the methods and substance of the field. They have set the standard for the next ten years." --Andrew Atkeson, Department of Economics, University of California, Los Angeles