MIU_SL

# MIU_SL - Money in the utility function Prof Lutz Hendricks...

This preview shows pages 1–7. Sign up to view the full content.

Money in the utility function Prof. Lutz Hendricks August 7, 2009 L. Hendricks () Sidrauski model August 7, 2009 1 / 20

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

View Full Document
Money in the utility function A shortcut for getting money valued in equilibrium: assume that households gain utility from holding money. "Sidrauski" model. L. Hendricks () Sidrauski model August 7, 2009 2 ± 20
The Economic Environment Much of the model is a standard growth model. The government prints paper (costlessly). Households gain utility from holding paper. L. Hendricks () Sidrauski model August 7, 2009 3 / 20

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

View Full Document
Household Households solve: max Z t = 0 e ρ t u ( c t , m t ) dt (1) subject to k 0 , m 0 given and p ( c + ˙ k ) + ˙ M = p ( w + rk + x ) (2) M is nominal money. m = M / p . x are lump-sum transfers (of money). L. Hendricks () Sidrauski model August 7, 2009 4 / 20
Household Budget constraint in real terms ˙ k + ˙ M / p = w + rk + x c (3) Note that ˙ m = ˙ M / p ( M / p 2 ) ˙ p = ˙ M / p m π where π ( π = ˙ p / p ) . Therefore ˙ k + ˙ m = w + rk + x c π m (4) L. Hendricks () Sidrauski model August 7, 2009 5 / 20

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

View Full Document
Household Budget constraint We seem to have 2 state variables ( k , m ) but only one law of motion. The reason: the correct state variable is wealth:
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 20

MIU_SL - Money in the utility function Prof Lutz Hendricks...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online