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Unformatted text preview: 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 )) + ln ( c ( s t +1 )) + ln ( c ( s t +2 )) bracketrightbig , 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 startsno income in later periods of their life....
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This note was uploaded on 11/10/2011 for the course ECONOMICS 601 taught by Professor Viktortsyrennikov during the Spring '11 term at Cornell University (Engineering School).
- Spring '11