homework7 2009 - consumption-output ratio, and *). ( 1 1 *)...

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ECN/APEC 6000/7230 Fall 2009 Homework 7 Due 11/24/09 1) Consider the two-period OLG model with f ( k ) = k α and u ( c ) = ln c . Describe how each of the following affects k t +1 ( k t ) and the steady-state k *. a) An increase in n . b) A decrease in productivity (i.e. f ( k ) = Bk where B < 1). c) A decrease in . 2) Consider the two-period OLG model with f ( k ) = k and . 1 1 1 1 ln ) ( 1 - = = - θ c c c u As a baseline calibration, let g an = 0.015, n an = 0.01, = 1, and = 1/3. Let δ an = 0.08 and ρ an = 0.04. a) If T is the period length in years, then argue that we should set . ) 1 ( 1 1 ) 1 ( 1 ) 1 ( 1 ) 1 ( T an T an T an T an n n g g - - = - + = - + = - + = b) For a period length of T = 30 years, compute , n , g , and according to (a). On a balanced growth path, what is k *, c 1 *, c 2 *, y *, r *, the capital-output ratio, the
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Unformatted text preview: consumption-output ratio, and *). ( 1 1 *) ( * 2 1 c u c u u + + = Note that r an must be converted back to an annual basis: ( 29 . 1 1 / 1-+ = T an r r The capital-output ratio must also be converted back: ECN/APEC 6000/7230 Fall 2009 T y k y k an = c) How do the observables computed in (b) change if we make each of the following changes to preference parameters while holding all other parameters to their baseline parameters? Change θ = 0.5 and = 2? (This will require you to solve numerically for k *.) Change ρ an to 0.02 or 0.06....
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This note was uploaded on 01/09/2011 for the course ECON 7230 taught by Professor Feigenbaum during the Spring '10 term at Utah Valley University.

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homework7 2009 - consumption-output ratio, and *). ( 1 1 *)...

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