Recursive Models of Dynamic Linear Economies

<p><b>A guide to the economic modeling of household preferences from two leaders in the field</b> <p/>A common set of mathematical tools underlies dynamic optimization dynamic estimation and filtering. In <i>Recursive Models of Dynamic Linear Economies</i> Lars Peter Hansen and Thomas Sargent use these tools to create a class of econometrically tractable models of prices and quantities. They present examples from microeconomics macroeconomics and asset pricing. The models are cast in terms of a representative consumer. While Hansen and Sargent demonstrate the analytical benefits acquired when an analysis with a representative consumer is possible they also characterize the restrictiveness of assumptions under which a representative household justifies a purely aggregative analysis. <p/>Hansen and Sargent unite economic theory with a workable econometrics while going beyond and beneath demand and supply curves for dynamic economies. They construct and apply competitive equilibria for a class of linear-quadratic-Gaussian dynamic economies with complete markets. Their book based on the 2012 Gorman lectures stresses heterogeneity aggregation and how a common structure unites what superficially appear to be diverse applications. An appendix describes MATLAB programs that apply to the book's calculations.</p>