Product Description

This rigorous but brilliantly lucid book presents a self-contained treatment of modern economic dynamics. Stokey, Lucas, and Prescott develop the basic methods of recursive analysis and illustrate 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 behavior, long-run growth, capital accumulation, job search, job matching, inventory behavior, asset pricing, and money demand are among those they use to show how predictions can he made about individual and social behavior. Researchers and graduate students in economic theory will find this book essential.

Product Details

• Amazon Sales Rank: #395686 in Books
• Published on: 1989-10-10
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 608 pages

Review
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 this book will eventually acquire the stature, say, of Hicks's Value and Capital or Samuelson's Foundations.
--Thomas J. Sargent, Hoover Institution

The book 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

This book 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

About the Author
Robert E. Lucas, Jr., is the John Dewey Distinguished Service Professor of Economics at the University of Chicago. In 1995, he was awarded the Nobel Prize in Economics.

Customer Reviews

Classic Textbook on Mathematics for Economists
Let's get three things straight. This book is (1) a textbook, (2) in mathematical techniques, and (3) aimed at economists. As a textbook, it contains a large number of exercises with which students can test their understanding. As it is written for economists, it is not as rigorous as a mathematics text, but is pitched at a level of rigor appropriate for an economics graduate program at a school like Chicago. As it is a mathematics text, it does not emphasize the economics underlying the problems.

Given this, I think the book does a wonderful job. It is beautifully intuitive, illustrated with lots of examples, and is just rigorous enough to provide the grounding necessary to go on to more advanced mathematics texts.

And for those who want a solutions manual, one is on the way ... Harvard University Press expects to release one some time in 2002. Early drafts are available from the authors: Irigoyen, Rossi-Hansberg and Wright, who are all graduate students at Chicago....

not a "textbook" on macro...
This is basically a handbook of mathematical methods necessary to study dynamic economic modells. As such it does a very good job, since as the authors note, just presenting the applications without developing the necessary mathematics would require the reader to keep quite a few math books alongside to keep going at an acceptable pace. It should be clear that the applications developed in this book are idiosyncratic (Carnegie-Mellon/Chicago/Minnesota school).
The book certainly doesn't work too well in a first year graduate Macro course, for that it is simply too terse. That a lot of material is left to the exercises certainly has to do with the fact that the book is already quite thick. In general this is going to be a textbook for a course and won't be used for self-study. Therefore i don't think that missing solutions to exercises are too much of a problem.
I think the book is useful for someone with an "ok" math backround, who has not yet had the chance to study dynamic programming, measure theory and lesbesque integration etc. and who wants to go beyond the typical first year macro stuff. If you have a strong math backround this book is rather unnecessary, save maybe the chapters on applications. I give the book 5 stars as a mathematical compendium, as a macro textbook (which the authors to not claim to have produced) it should get less.

Good as research reference, but not in mastering the field
As a research economist or graduate student, especially if working in economic theory or dynamic macroeconomics, it is difficult to overstate the value of this book as a handy guide for a set of essential facts (re: theorems) regarding the existence of solutions to dynamic programming problems or markov decision processes, as well as characterizing the properties of the set of solutions.
That being said, this is not the book a budding theorist wants to learn techniques from (For the mathematical prerequisites: measure theory, topology, probability, stochastic processes, hilbert spaces, there are better treatments in the math literature. For dynamic programming in discrete time itself: Bertsekas and Shreve's 1978 text is far superior). Though I am not an expert in macroeconomics, I believe Sargent's sequence of books is a better source for learning the how-to-do, while keeping the economic questions crystal clear: neither of these is a strong point of this book.