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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 Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691042770.001.0001

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Economic Environments

Economic Environments

(p.61) Chapter 4 Economic Environments
Recursive Models of Dynamic Linear Economies

Lars Peter Hansen

Thomas J. Sargent

Princeton University Press

This chapter describes an economic environment with five components: a sequence of information sets, laws of motion for taste and technology shocks, a technology for producing consumption goods, a technology for producing services from consumer durables and consumption purchases, and a preference ordering over consumption services. A particular economy is described by a set of matrices that characterize the motion of information sets and of taste and technology shocks; matrices that determine the technology for producing consumption goods; matrices that determine the technology for producing consumption services from consumer goods; and a scalar discount factor that helps determine the preference ordering over consumption services. The chapter describes and gives examples of each component of the economic environment.

Keywords:   economic environment, taste, technology shock, consumption, matrices, laws of motion, preference ordering

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