Recursive Methods in Economic Dynamics

Three eminent economists provide in this book a rigorous, self-contained treatment of modern economic dynamics. Nancy L. Stokey, Robert E. Lucas, Jr., and Edward C. Prescott develop the basic methods of recursive analysis and emphasise the many areas where they can usefully be applied.

After presenting an overview of the recursive approach, the authors develop economic applications for deterministic dynamic programming and the stability theory of first-order difference equations. They then treat stochastic dynamic programming and the convergence theory of discrete-time Markov processes, illustrating each with additional economic applications. They also derive a strong law of large numbers for Markov processes. Finally, they present the two fundamental theorems of welfare economics and show how to apply the methods developed earlier to general equilibrium systems.

The authors go on to apply their methods to many areas of economics. Models of firm and industry investment, household consumption behaviour, long-run growth, capital accumulation, job search, job matching, inventory behaviour, asset pricing, and money demand are among those they use to show how predictions can be made about individual and social behaviour. Researchers and graduate students in many areas of economics, both theoretical and applied, will find this book essential.

Recursive Methods in Economic Dynamics is a key resource for those seeking to understand the application of recursive methods in various economic models, making it invaluable for expanding both theoretical and applied economic knowledge.