ps5macro2sp06 - Econ 387L: Macro II Spring 2006, University...

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Econ 387L: Macro II Spring 2006, University of Texas Instructor: Dean Corbae Problem Set #5- Due 2/21/06 This problem set introduces you to estimating a subset of the deep parameters of the structural model via the simulated method of moments. The simulated moments will come from the decision rules you compute via the method of undetermined coef f cients suggested in Christiano (2001) for the the simple economy I introduced in class (equivalently, you can simply use the nonlinear 2 equation system that I calculated in class). That is, derive the linear decision rules for the planner’s problem: max E " X t =0 β t ln( C t ) # s.t. C t + K t +1 = Z t K θ t +(1 δ ) K t Z t =(1 ρ )+ ρZ t 1 + ε t where ε t is an iid random shock drawn from N (0 2 ) . In order to keep the estimation exercise simple, we will assume that a subset of the deep structural parameters are set to their calibrated values: θ =0 . 36 =0 . 015 , and β =0 . 9921 . The exercise is to match the autocorrelation and standard deviation of real output data (i.e. ρ y and σ y in an AR1 of Hodrick-Prescott f ltered output data) to the same moments simulated from the model in order to determine the “unobservable” ρ and σ parameters of the technology shock process { z t } . Call the data moment vector M d T =( ρ y y ) . Call the parameter vector
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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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ps5macro2sp06 - Econ 387L: Macro II Spring 2006, University...

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