A substantially revised new edition of a widely used text, offering both an introduction to recursive methods and advanced material.

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. Only experience in solving practical problems fully conveys the power of the recursive approach, and the book provides many applications. This third edition offers substantial new material, with three entirely new chapters and significant revisions to others. The new content reflects recent developments in the field, further illustrating the power and pervasiveness of recursive methods.

New chapters cover asset pricing empirics with possible resolutions to puzzles; analysis of credible government policy that entails state variables other than reputation; and foundations of aggregate labor supply with time averaging replacing employment lotteries. Other new material includes a multi-country analysis of taxation in a growth model, elaborations of the fiscal theory of the price level, and age externalities in a matching model.

The book is suitable for both first- and second-year graduate courses in macroeconomics and monetary economics. Most chapters conclude with exercises. Many exercises and examples use Matlab programs, which are cited in a special index at the end of the book.

A substantially revised new edition of a widely used text, offering both an introduction to recursive methods and advanced material.

Acknowledgements Preface to the third edition Part I: The imperialism of recursive methods 1. Overiview Part II: Tools 2. Time Series 3. Dynamic Programming 4. Practical Dynamic Programming 5. Linear Quadratic Dynamic Programming 6. Search, Matching, and Unemployment Part III: Competitive equilibria and applications 7. Recursive (Partial) Equilibrium 8. Equilibrium with Complete Markets 9. Overlapping Generations Models 10. Ricardian Equivalence 11. Fiscal Policies in a Growth Model 12. Recursive Competitive Equilibria 13. Asset Pricing Theory 14. Asset Pricing Empirics 15. Economic Growth 16. Optimal Taxation with Commitment Part IV: The savings problem and Bewley models 17. Self-Insurance 18. Incomplete Market's Models Part V: Recursive contracts 19. Dynamic Stackelberg Problems 20. Insurance Versus Incentives 21. Equilibrium without Commitment 22. Optical Unemployment Insurance 23. Credible Government Policies, I 24. Credible Government Policies, II 25. Two Topics in International Trade Part VI: Classical monetary and labor economics 26. Fiscal-Monetary Theories of Inflation 27. Credit and Currency 28. Equilibrium Search and Matching 29. Foundations of Aggregate Labor Supply Part VII: Technical appendices A. Functional Analysis B. Linear projections and hidden Markov models 1. References 2. Subject Index 3. Author Index 4. Matlab Index