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# hw-07 - Homework 7 Graduate Macroeconomics Viktor...

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Homework 7 Graduate Macroeconomics. Viktor Tsyrennikov Question 1. Exercise 9.3. Assume u ( c ) = ln ( c ). Ignore part (c). Question 2. Time is discrete. There is one perishable good at each date. Uncertainty is fully summarized by a first-order Markov process s t with transition density F ( s t +1 | s t ). Individuals live for 3 periods: age 0,1,2. An individual born at history s t ranks different consumptions streams according to: U ( c | s t ) = E bracketleftbig ln ( c ( s t )) + γln ( c ( s t +1 )) + ln ( c ( s t +2 )) bracketrightbig , γ greaterorequalslant 1 . Note that every individual values consumption in the second period of her life more than in other periods. Financial markets trade one unit of stock paying d ( s t ) units of good in state s t . Stock is traded at the ex-dividend price q ( s t ). Individuals’ initial endowment of stock is zero. Individuals receive 1 unit of good in the first period that they live and no income in later periods of their life. Assume that the economy starts at t = -∞

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hw-07 - Homework 7 Graduate Macroeconomics Viktor...

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