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Unformatted text preview: ECN/APEC 7240 Spring 2010 Homework 9 Due 4/28/10 1) Consider an economy with a single consumer. There is one good in the economy, which arrives in the form of an exogenous endowment obeying , 1 1 t t t y y + + = λ where y t is the endowment at time t and and λ t +1 is governed by a 2state Markov chain with transition matrix [ ] , 1 1 ]  Pr[ 22 22 11 11 1  = = = = + p p p p p ij i t j t λ λ λ λ and initial distribution Pr[ λ = λ i ] = π i where π 1 = π and π 2 = 1  π . We calibrate λ 1 = 0.98 and λ 2 = 1.03. Assume the histories y t and λ t are observed at t . The consumer has preferences , ) ~ ( ∑ ∞ = t t t c u E β where β ∈ (0, 1) and γ γ = 1 ) ( 1 c c u for γ > 1. a) Define a competitive equilibrium, being careful to name all the objects of which it consists. b) Tell how to compute a competitive equilibrium....
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 Spring '10
 Kutler
 Microeconomics, Remainder, Consumer, Markov chain, time j consumption

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