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Recursive Models of Dynamic Linear Economies$
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Lars Peter Hansen and Thomas J. Sargent

Print publication date: 2013

Print ISBN-13: 9780691042770

Published to University Press Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691042770.001.0001

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date: 13 December 2017

Theory and Econometrics

Theory and Econometrics

(p.3) Chapter 1 Theory and Econometrics
Recursive Models of Dynamic Linear Economies

Lars Peter Hansen

Thomas J. Sargent

Princeton University Press

This chapter sets out the book's focus, namely constructing and applying competitive equilibria for a class of linear-quadratic-Gaussian dynamic economies with complete markets. Here, an economy will consist of a list of matrices that describe people's household technologies, their preferences over consumption services, their production technologies, and their information sets. Competitive equilibrium allocations and prices satisfy some equations that are easy to write down and solve. These competitive equilibrium outcomes have representations that are convenient to represent and estimate econometrically. The chapter then discusses the construction of a class of economies, the computer programs used, followed by an overview of the subsequent chapters.

Keywords:   competitive equilibia, linear-quadratic-Gaussian-dynamic economies, complete markets, economy

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