Recursive methods offer a powerful approach for characterizing and solvingcomplicated problems in dynamic macroeconomics. Recursive Macroeconomic Theory provides both anintroduction to recursive methods and advanced material, mixing tools and sample applications. Onlyexperience in solving practical problems fully conveys the power of the recursive approach, and thebook provides many applications. This third edition offers substantial new material, with threeentirely new chapters and significant revisions to others. The new content reflects recentdevelopments in the field, further illustrating the power and pervasiveness of recursivemethods. New chapters cover asset pricing empirics with possible resolutions topuzzles; analysis of credible government policy that entails state variables other than reputation;and foundations of aggregate labor supply with time averaging replacing employment lotteries. Othernew material includes a multi-country analysis of taxation in a growth model, elaborations of thefiscal theory of the price level, and age externalities in a matching model. Thebook is suitable for both first- and second-year graduate courses in macroeconomics and monetaryeconomics. Most chapters conclude with exercises. Many exercises and examples use Matlab programs,which are cited in a special index at the end of the book.