The substantially revised fourth edition of a widely used text, offering both an introduction to recursive methods and advanced material, mixing tools and sample applications.

Recursive methods provide powerful ways to pose and solve problems in dynamic macroeconomics. Recursive Macroeconomic Theory offers both an introduction to recursive methods and more advanced material. Only practice in solving diverse problems fully conveys the advantages of the recursive approach, so the book provides many applications. This fourth edition features two new chapters and substantial revisions to other chapters that demonstrate the power of recursive methods.
 
One new chapter applies the recursive approach to Ramsey taxation and sharply characterizes the time inconsistency of optimal policies. These insights are used in other chapters to simplify recursive formulations of Ramsey plans and credible government policies. The second new chapter explores the mechanics of matching models and identifies a common channel through which productivity shocks are magnified across a variety of matching models. Other chapters have been extended and refined. For example, there is new material on heterogeneous beliefs in both complete and incomplete markets models; and there is a deeper account of forces that shape aggregate labor supply elasticities in lifecycle models.
 
The book is suitable for first- and second-year graduate courses in macroeconomics. Most chapters conclude with exercises; many exercises and examples use Matlab or Python computer programming languages.

About the Author

Lars Ljungqvist is Professor of Economics at the Stockholm School of Economics.

Thomas J. Sargent, awarded the 2011 Nobel Prize in Economic Sciences, is Berkley Professor of Economics and Business at New York University and Senior Fellow at the Hoover Institution.

Acknowledgments Preface to the fourth edition Part Ⅰ. Imperialism of recursive methods 1. Overview Part Ⅱ. Tools 2.Time series 3.Dynamic programming 4.Practical dynamic programming 5.Linear quadratic dynamic programming 6.Search and unemployment Part Ⅲ. Competitive equilibria and applications 7.Recursive competitive equilibrium: I 8.Equilibrium with complete markets 9.Overlapping generations 10.Ricardian equivalence 11.Fiscal policies in a growth model 12.Recursive competitive equilibrium: II 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 markets models Part Ⅴ. Recursive contracts 19.Dynamic stackelberg problems 20.Two ramsey problems revisited 21.Incentives and insurance 22.Equilibrium without commitment 23.Optimal unemployment insurance 24.Credible government policies: I 25.Credible government policies: II 26.Two topics in international trade Part Ⅵ. Classical monetary and labor economics 27.Fiscal-monetary theories of inflation 28.Credit and currency 29.Equilibrium search, matching, and lotteries 30.Matching models mechanics 31.Foundations of aggregate labor supply Part Ⅶ. Technical appendices A. Functional analysis B. Linear projections and hidden markov models References Subject index Author index Matlab index.