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# PS2 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 2...

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ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 2: Due on Thursday, February 11 in class (100 points total) Write a MATLAB code for the following stochastic growth model. The state of a rep- resentative agent is de°ned by his capital stock, k , and a productivity shock, z . The shock can take two values, z L = : 9 and z H = 1 : 1 , and follows a °rst-order Markov process with transition matrix Q ( z; z 0 ) , where the transition probabilities of staying at either value is : 8 . The agent is endowed with one unit of time each period and maximizes his expected discounted utility of consumption, E 1 P t =0 ° t u ( c t ) , where u ( c ) = log ( c ) and ° = : 9 . (The agent does not care about leisure.) The output from the Cobb-Douglas production technology, y t = z t k ° t l 1 ° ° t , where ± = : 3 , is divided between consumption and investment into the capital stock. The capital stock depreciation is ² = : 1 . Use the interval K = ° k ; ° k ± with N equally spaced points as your grid for the capital stock with k = : 01 . You will need to experiment with setting ° k

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PS2 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 2...

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