Contemporary Financial Intermediation

The substantially revised fourth edition of a widely used text, offering both an introduction to recursive methods and advanced material, mixing tools and sample applications. Recursive methods provide powerful ways to pose and solve problems in dynamic macroeconomics. Recursive Macroeconomic Theory offers both an introduction to recursive methods and more advanced material. Only practice in solving diverse problems fully conveys the advantages of the recursive approach, so the book provides many applications. This fourth edition features two new chapters and substantial revisions to other chapters that demonstrate the power of recursive methods. One new chapter applies the recursive approach to Ramsey taxation and sharply characterizes the time inconsistency of optimal policies. These insights are used in other chapters to simplify recursive formulations of Ramsey plans and credible government policies. The second new chapter explores the mechanics of matching models and identifies a common channel through which productivity shocks are magnified across a variety of matching models. Other chapters have been extended and refined. For example, there is new material on heterogeneous beliefs in both complete and incomplete markets models; and there is a deeper account of forces that shape aggregate labor supply elasticities in lifecycle models. The book is suitable for first- and second-year graduate courses in macroeconomics. Most chapters conclude with exercises; many exercises and examples use Matlab or Python computer programming languages. Contents Acknowledgments Preface to the fourth edition Part I Imperialism of Recursive Methods Chapter 1 Overview Part II Tools Chapter 2 Time Series Chapter 3 Dynamic Programming Chapter 4 Practical Dynamic Programming Chapter 5 Linear Quadratic Dynamic Programming Chapter 6 Search and Unemployment Part III Competitive Equilibria and Applications Chapter 7 Recursive Competitive Equilibrium: I Chapter 8 Equilibrium with Complete Markets Chapter 9 Overlapping Generations Chapter 10 Ricardian Equivalence Chapter 11 Fiscal Policies in a Growth Model Chapter 12 Recursive Competitive Equilibrium: II Chapter 13 Asset Pricing Theory Chapter 14 Asset Pricing Empirics Chapter 15 Economic Growth Chapter 16 Optimal Taxation with Commitment Part IV Savings Problems and Bewley Models Chapter 17 Self-Insurance Chapter 18 Incomplete Markets Models Part V Recursive Contracts Chapter 19 Dynamic Stackelberg Problems Chapter 20 Two Ramsey Problems Revisited Chapter 21 Incentives and Insurance Chapter 22 Equilibrium without Commitment Chapter 23 Optimal Unemployment Insurance Chapter 24 Credible Government Policies: I Chapter 25 Credible Government Policies: II Chapter 26 Two Topics in International Trade Part VI Classical Monetary and Labor Economics Chapter 27 Fiscal-Monetary Theories of Inflation Chapter 28 Credit and Currency Chapter 29 Equilibrium Search,Matching, and Lotteries Chapter 30 Matching Models Mechanics Chapter 31 Foundations of Aggregate Labor Supply Part VII Technical Appendices Appendix A. Functional Analysis Appendix B. Linear Projections and Hidden Markov Models References Subject Index Author Index Matlab Index Preface to the fourth edition -- Imperialism of recursive methods -- Overview -- Tools -- Time series -- Dynamic programming -- Practical dynamic programming -- Linear quadratic dynamic programming -- Search and unemployment -- Competitive equilibria and applications -- Recursive competitive equilibrium: I -- Equilibrium with complete markets -- Overlapping generations -- Ricardian equivalence -- Fiscal policies in a growth model -- Recursive competitive equilibrium: II -- Asset pricing theory -- Asset pricing empirics -- Economic growth -- Optimal taxation with commitment -- The savings problem and bewley models -- Self-insurance -- Incomplete markets models -- Recursive contracts -- Dynamic stackelberg problems -- Two ramsey problems revisited -- Incentives and insurance -- Equilibrium without commitment -- Optimal unemployment insurance -- Credible government policies: I -- Credible government policies: II -- Two topics in international trade -- Classical monetary and labor economics -- Fiscal-monetary theories of inflation -- Credit and currency -- Equilibrium search, matching, and lotteries -- Matching models mechanics -- Foundations of aggregate labor supply -- Technical appendices -- A. Functional analysis -- B. Linear projections and hidden markov models -- References -- Subject index -- Author index -- Matlab index