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# 387hw7 - Economics 387 Banking and Financial Intermediation...

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Economics 387. Banking and Financial Intermediation. Spring 2002. Department of Economics, University of Texas Instructor: Dean Corbae, BRB 3.118, (o) 512-475-8530 email: [email protected], web: www.eco.utexas.edu/°corbae Homework #7 - Due 4/24/02 Two important issues in quantitative real business cycle theory are ampli- ° cation and persistence of technological shocks. Kocherlakota (2000) consid- ers whether credit constraints can help address these issues. In this assign- ment you are to simulate the impulse response functions for a variant of the model considered in that paper. The household±s problem in this economy is max { C t ,K t +1 ,L t +1 ,B t +1 } E 1 X t =0 β t log( C t ) s.t.C t + K t +1 + Q t L t +1 B t +1 θ t K γ 1 t L γ 2 t +(1 δ ) K t + Q t L t B t (1+ R ) (1) B t +1 Q t L t +1 (2) C t 0 , K t +1 0 , L t +1 0 , B 0 , K 0 given, L 0 = 1 . The stochastic process for technology shocks is given by ( θ t 1) = ρ ( θ t 1 1) + ε t (3) where ε t is an i.i.d. process. You are given the following parameter val- ues: R = 0 . 03 , β = 0 . 98 / (1 + R ) , γ 1 = 0 . 3 , γ 2 = 0 . 1 , δ = 0 . 1 , ρ = 0 . 9 . An equilibrium for this economy is a collection { Q t , C t , K t +1 , B t +1 } t =0 such that { C t , K t +1

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