ps2macro2sp08 - Econ 387L Macro II Spring 2008 University...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 387L: Macro II Spring 2008, University of Texas Instructor: Dean Corbae Problem Set #2- Due 1/29/08 Consider a stochastic growth model with the following specification. Preferences: U ( C t ,H t t )= ³ C t + λ t h (1 H t ) 1 η 1 1 η 1 ψ 1 1 ψ where λ t =(1 γ ) 1 λ t 1 ε t 1 =1 . (1) and log ε t is i.i.d. N (0 ε ) . Agents discount the future at rate β< 1 . Technology: Y t = K θ t ¡ (1 + g ) t H t ¢ 1 θ (2) where K 0 is given, 1 H t 0 . Information: Households must choose H t before knowing the shock to preferences λ t but choose K t +1 after its realization. 1) Derive the stochastic Euler equation for the savings choice. 2) Derive the equation describing the labor/leisure choice. 3) Along a possible balanced growth path, assume that ε t is constant and equal to its expected value of 1. Under what conditions on parameters might a balanced growth path where K t ,C t ,Y t allgrowatrate
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/06/2008 for the course ECON 387 taught by Professor Corbae during the Spring '07 term at University of Texas.

Page1 / 2

ps2macro2sp08 - Econ 387L Macro II Spring 2008 University...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online