ps3macro2sp06 - Econ 387L: Macro II Spring 2006, University...

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Unformatted text preview: Econ 387L: Macro II Spring 2006, University of Texas Instructor: Dean Corbae Problem Set #3- Due 2/7/06 Consider a stochastic growth model with the following speci f cation. Preferences: U ( C t , H t , t ) = C t + t h (1 H t ) 1 1 1 i 1 1 1 where t = (1 ) 1 t 1 t , 1 = 1 . (1) and log t is i.i.d. N (0 , ) . Agents discount the future at rate < 1 . Technology: Y t = K t (1 + g ) t H t 1 (2) where K is given, 1 H t . Information: Households must choose H t before knowing the shock to preferences 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 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 all grow at rate...
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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 at Austin.

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ps3macro2sp06 - Econ 387L: Macro II Spring 2006, University...

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