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Synopsis
This manual presents detailed solutions to all the problems contained in Macroeconomic Theory, Second Edition. The material in Sargent's book is up-to-date and quite challenging; an essential ingredient in understanding it is working the exercises.
The emphasis in this manual is on how to use the methods and procedures presented in Macroeconomic Theory, Second Edition to solve its exercises. The exercises not only illustrate the theoretical foundations of macroeconomic research but also treat issues and problems from the recent literature. This manual will serve as a useful reference for students and researchers alike.
"When the manuscript for the first edition of this book was sent to the publisher in 1977, I was only beginning to understand the ramifications of the cross-equation restrictions that the hypothesis of rational expectations imposes on an equilibrium stochastic process of a dynamic model. Some of those ramifications had leaked into the first edition of this book, but many more are present in this edition. A formula expressing these restrictions in linear models was published by Lars Hansen and me in 1980. That formula is applied repeatedly in this edition."
--Preface to the Second Edition
"The first edition appeared at a time when discussions of the 'policy ineffectiveness proposition' occupied much of the attention of macroeconomists. As work of John B. Taylor has made clear, the methodological and computational implications of the hypothesis of rational expectations for the theory of optimal macroeconomic policy far transcend the question of whether we accept or reject particular models embodying particular neutrality propositions. Indeed,relative to the simple early models of Barro and Sargent and Wallace, models in which government policy choices affect allocations require much more intricate exploitation of the cross-equation restrictions of rational expectations in optimally choosing government policy. The current edition contains many more examples of models in which a government faces a nontrivial policy choice than did the earlier edition."
--Preface to the Second Edition