ECON476_hw3

ECON476_hw3 - Graduate Macroeconomics II: Business Cycles...

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Graduate Macroeconomics II: Business Cycles Homework 3 Due Date: Feb 10 (Recitation Hour). 1. Read King, Plosser and Rebelo (1988 and its technical appendix avail- able from the blackboard) and Prescott (1986). Write down the the log-linearized version of the stochastic growth model with two exoge- nous shocks: aggregate supply shock (temporary variation in TFP, A t ), and aggregate demand shock (government spending, G t ). Assume that the government is running a balanced budget: G t = T t where T t is the lump-sum tax and G t is the government purchase of goods. The consumer’s utility function is t =0 β t (log C t + B (1 - N t ) 1 - ψ 1 - ψ ). (a) Assume a Cobb-Douglas production function: Y t = A t K 1 - α t ( N t X t ) α . Supposes X t is the deterministic labor-augmenting technological progress: X t /X t - 1 = γ X . Suppose the temporary variation in productivity follows an AR(1) process in logs A t = ¯ Ae a t where a t = ρ a a t - 1 + ² a,t and ² a,t N (0 2 a
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This note was uploaded on 09/06/2011 for the course ECO 476 taught by Professor Chang during the Fall '07 term at Rochester.

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ECON476_hw3 - Graduate Macroeconomics II: Business Cycles...

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