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Exercises in Recursive Macroeconomic Theory

preliminary and incomplete
Stijn Van Nieuwerburgh
Pierre-Olivier Weill
Lars Ljungqvist
Thomas J. Sargent


This is a ¯rst version of the solutions to the exercises in Recursive Macroeco-
nomic Therory, First Edition, 2000, MIT press, by Lars Ljungqvist and Thomas J.
Sargent. This solution manuscript is currently only available on the web. We in-
vite the reader to bring typos and other corrections to our attention. Please email, or
We will regularly update this manuscript during the following months. Some
questions ask for computations in matlab. The program ¯les can be downloaded
from the ftp site
The authors, Stanford University, March 15, 2003.


Introduction  2
List of Figures  5
Chapter 1. Time series  7
Chapter 2. Dynamic programming  33
Chapter 3. Practical dynamic programming  37
Chapter 4. Linear quadratic dynamic programming  43
Chapter 5. Search, matching, and unemployment  55
Chapter 6. Recursive (partial) equilibrium  83
Chapter 7. Competitive equilibrium with complete markets 95
Chapter 8. Overlapping generation models  109
Chapter 9. Ricardian equivalence  161
Chapter 10. Asset pricing  163
Chapter 11. Economic growth  175
Chapter 12. Optimal taxation with commitment  187
Chapter 13. Self-insurance  201
Chapter 14. Incomplete markets models  211
Chapter 15. Optimal social insurance  223
Chapter 16. Credible government policies  257
Chapter 17. Fiscal-monetary theories of in°ation  267
Chapter 18. Credit and currency  283
Chapter 19. Equilibrium search and matching  307
Index  343   Tell A Friend