Solutions Manual for Recursive Methods in Economic Dynamics

by Claudio Irigoyen, Esteban Rossi-Hansberg and Mark L. J. Wright

Harvard University Press, 2002 Paper: 978-0-674-00888-5 | eISBN: 978-0-674-03896-7 Library of Congress Classification HB145.I75 2002 Dewey Decimal Classification 330.0151

ABOUT THIS BOOK | REVIEWS | TOC

ABOUT THIS BOOK

This solutions manual is a valuable companion volume to the classic textbook Recursive Methods in Economic Dynamics by Nancy L. Stokey, Robert E. Lucas, Jr., and Edward C. Prescott. The exercises in the Stokey et al. book are integral to the text, and thus, a reader cannot fully appreciate the text without understanding the results developed in the exercises. This manual provides detailed answers to the central exercises in Recursive Methods.

The authors’ selection of exercises is designed to maximize the reader’s understanding of Recursive Methods. Solutions are presented to every question in the core chapters on recursive methods, as well as most questions from the chapters on mathematical background. Some questions from the chapters on applications of these techniques to economic models have been reserved so as to provide instructors with a crucial “test bank” of questions.

Efficient and lucid in approach, this manual will greatly enhance the value of Recursive Methods as a text for self-study.

REVIEWS

[Recursive Methods in Economic Dynamics] is a tour de force. The authors present a unified approach to the techniques and applications of recursive economic theory. The presentations of discrete-time dynamic programming and of Markov processes are authoritative. There is a wide-ranging series of examples drawn from all branches of the discipline, but with special emphasis on macroeconomics. In the short run, the book will be a vital reference in any advanced course in macroeconomic theory. In the long run, it may help to remove the traditional boundaries between microeconomic theory and macroeconomic theory.
-- Andrew Caplin, Columbia University

[Recursive Methods in Economic Dynamics] is a wonderful collection of results on the techniques of dynamic programming with great applications to economics written by giants in the field.
-- Sanford J. Grossman, University of Pennsylvania

A magnificent work that is bound to have immense influence on the ways economists think about dynamic systems for many years to come. My own guess is that [Recursive Methods in Economic Dynamics] will eventually acquire the stature, say, of Hicks’s Value and Capital or Samuelson’s Foundations.
-- Thomas J. Sargent, The Hoover Institution

TABLE OF CONTENTS

1 Introduction 1
2 An Overview 3
3 Mathematical Preliminaries 20
4 Dynamic Programming under Certainty 42
5 Applications of Dynamic Programming under Certainty 53
6 Deterministic Dynamics 80
7 Measure Theory and Integration 98
8 Markov Processes 131
9 Stochastic Dynamic Programming 147
10 Applications of Stochastic Dynamic Programming 171
11 Strong Convergence of Markov Processes 190
12 Weak Convergence of Markov Processes 198
13 Applications of Convergence Results for Markov Processes 212
14 Laws of Large Numbers 234
15 Pareto Optima and Competitive Equilibria 240
16 Applications of Equilibrium Theory 253
17 Fixed-Point Arguments 270
18 Equilibria in Systems with Distortions 284

Solutions Manual for Recursive Methods in Economic Dynamics

by Claudio Irigoyen, Esteban Rossi-Hansberg and Mark L. J. Wright

Harvard University Press, 2002 Paper: 978-0-674-00888-5 eISBN: 978-0-674-03896-7

This solutions manual is a valuable companion volume to the classic textbook Recursive Methods in Economic Dynamics by Nancy L. Stokey, Robert E. Lucas, Jr., and Edward C. Prescott. The exercises in the Stokey et al. book are integral to the text, and thus, a reader cannot fully appreciate the text without understanding the results developed in the exercises. This manual provides detailed answers to the central exercises in Recursive Methods.

The authors’ selection of exercises is designed to maximize the reader’s understanding of Recursive Methods. Solutions are presented to every question in the core chapters on recursive methods, as well as most questions from the chapters on mathematical background. Some questions from the chapters on applications of these techniques to economic models have been reserved so as to provide instructors with a crucial “test bank” of questions.

Efficient and lucid in approach, this manual will greatly enhance the value of Recursive Methods as a text for self-study.

REVIEWS

[Recursive Methods in Economic Dynamics] is a tour de force. The authors present a unified approach to the techniques and applications of recursive economic theory. The presentations of discrete-time dynamic programming and of Markov processes are authoritative. There is a wide-ranging series of examples drawn from all branches of the discipline, but with special emphasis on macroeconomics. In the short run, the book will be a vital reference in any advanced course in macroeconomic theory. In the long run, it may help to remove the traditional boundaries between microeconomic theory and macroeconomic theory.
-- Andrew Caplin, Columbia University

[Recursive Methods in Economic Dynamics] is a wonderful collection of results on the techniques of dynamic programming with great applications to economics written by giants in the field.
-- Sanford J. Grossman, University of Pennsylvania

A magnificent work that is bound to have immense influence on the ways economists think about dynamic systems for many years to come. My own guess is that [Recursive Methods in Economic Dynamics] will eventually acquire the stature, say, of Hicks’s Value and Capital or Samuelson’s Foundations.
-- Thomas J. Sargent, The Hoover Institution

TABLE OF CONTENTS

1 Introduction 1
2 An Overview 3
3 Mathematical Preliminaries 20
4 Dynamic Programming under Certainty 42
5 Applications of Dynamic Programming under Certainty 53
6 Deterministic Dynamics 80
7 Measure Theory and Integration 98
8 Markov Processes 131
9 Stochastic Dynamic Programming 147
10 Applications of Stochastic Dynamic Programming 171
11 Strong Convergence of Markov Processes 190
12 Weak Convergence of Markov Processes 198
13 Applications of Convergence Results for Markov Processes 212
14 Laws of Large Numbers 234
15 Pareto Optima and Competitive Equilibria 240
16 Applications of Equilibrium Theory 253
17 Fixed-Point Arguments 270
18 Equilibria in Systems with Distortions 284