Recursive Macroeconomic Theory, Second Edition

Recursive Macroeconomic Theory, Second Edition

By Lars Ljungqvist and Thomas J. Sargent

A significant new edition of a text that offers both tools and sample applications; extensive revisions and seven new chapters improve and expand upon the original treatment.





A significant new edition of a text that offers both tools and sample applications; extensive revisions and seven new chapters improve and expand upon the original treatment.

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.


Out of Print ISBN: 9780262122740 1120 pp. | 7 in x 9 in 50 illus.


  • 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

  • Teachers and students alike will find this book invaluable. It is a superb exposition of how the integration of microeconomics and macroeconomics provides a coherent way to think about dynamic economic behavior.

    Mervyn King

    Deputy Governor, Bank of England

  • This is a magnificent book, bringing together tractable recursive dynamics and a rich array macroeconomic applications. The authors make it insightful and natural for a reader, using the tools they've laid out, to go on to attack substantive and original research question after research question in dynamic macroeconomics.

    Danny Quah

    London School of Economics

  • 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

  • Dynamic macroeconomics in the 90's has been about introducing various kinds of market imperfections and heterogeneity in the models available before. This book teaches, in a comprehensive and understandable way, how to use and formualte those models. There is no other book like it at this time.

    Albert Marcet

    Department of Economics and Business, Universitat Pompeu