Books

A common set of mathematical tools underlies dynamic optimization, dynamic estimation, and filtering. In Recursive Models of Dynamic Linear Economies, 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.
Based on the 2012 Gorman lectures, the authors 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 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.

@book{hansensargent:2013recursive,
  title={Recursive Models of Dynamic Linear Economies},
  author={Hansen, Lars Peter and Sargent, Thomas J},
  year={2013},
  publisher={Princeton University Press}
}

This is the third of three volumes containing edited versions of papers and commentaries presented in invited symposium sessions of the Eighth World Congress of the Econometric Society. The papers summarize and interpret recent key developments and discuss future directions in a wide range of topics in economics and econometrics. The papers cover both theory and applications. Written by leading specialists in their fields, these volumes provide a unique survey of progress in the discipline.

@techreport{dewatripont2003advances,
  title={Advances in Economics and Econometrics},
  author={Dewatripont, Mathias and Hansen, Lars and Turnovsky, Stephen J},
  year={2003},
  institution={Cambridge University Press}
}

At the core of the rational expectations revolution is the insight that economic policy does not operate independently of economic agents’ knowledge of that policy and their expectations of the effects of that policy. This means that there are very complicated feedback relationships existing between policy and the behaviour of economic agents, and these relationships pose very difficult problems in econometrics when one tries to exploit the rational expectations insight in formal economic modelling.

This volume consists of work by two rational expectations pioneers dealing with the “nuts and bolts” problems of modelling the complications introduced by rational expectations. Each paper deals with aspects of the problem of making inferences about parameters of a dynamic economic model on the basis of time series observations. Each exploits restrictions on an econometric model imposed by the hypothesis that agents within the model have rational expectations.

Please note: This book is out of print, but a scanned copy of the text can be found on Tom Sargent’s website by following this link.

@book{hansen1991rational,
  title={Rational Expectations Econometrics},
  author={Hansen, Lars Peter and Sargent, Thomas J and Heaton, John and Marcet, Albert and Roberds, William},
  year={1991},
  publisher={Westview Press Boulder, CO}
}