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OLG_Money_PS

OLG_Money_PS - Problem Set 2 OLG Models With Money Econ720...

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Problem Set 2: OLG Models With Money Econ720. Fall 2009. Lutz Hendricks 1 Money and Storage follows: The old enter period t holding aggregate capital K t = N t 1 k t and nominal money balances of M t = m t N t 1 . Each old person produces f ( k t ) . All capital is used up in production (complete depreciation). Assume that f ( : ) obeys Inada conditions. The government pays a lump-sum transfer of x t p t units of money to each old person: M t +1 = M t + N t 1 x t p t . N t = (1 + n ) t young households are born. Each is endowed with e units of a single good. The young buy money ( m t +1 =p t ) from the old, consume c y t and save k t +1 . The old consume their income. The utility function is u ( c y t ) + ( c o t +1 ) . (a) State the household±s budget constraints when young and old.

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OLG_Money_PS - Problem Set 2 OLG Models With Money Econ720...

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