HW5ans - Alejandro Badel. Macro II, Jonathan Heatchote....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Alejandro Badel. Macro II, Jonathan Heatchote. Homework 5 Answers. 1) Recursive formulation of the individual&s maximization problem: state: ( a;w ) where a represents beggining of period bond holdings and w is the current realization of the wage process. control: ( n;a ) where n are hours worked and a are end of period bond holdings. feasible set: & ( a;w ) = f ( n;a ) : wn + (1 + r ) a & a ;a g Bellman Equation: V ( a;w ) = max a 2 &( a;w ) ( 1 1 & & & wn + (1 + r ) a & a & n 1+1 =" 1 + 1 =" 1 & & + E [ V ( a ;w ) j w ] ) w random draw from ( w j w ) 2) First order conditions Intertemporal u c (1 + r ) E [ u c j w ] Intratemporal wu c = & u n 3) From the Intratemporal FOC we have w = n 1 =" ln n = & " ln + " ln w We can see that the elasticity of worked hours with respect to wages is given by ": 4) We could assume for simplicity that the wage distribution starts o/ at its stationary value, this would make the planner&s problem invariant over time. Mantaining the assumption that the initial distribution is uniform (50 50), we can formulate the planner&s problem recursively as follows:...
View Full Document

Page1 / 4

HW5ans - Alejandro Badel. Macro II, Jonathan Heatchote....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online