HW6 - Homework 6, Econ 606 Jonathan Heathcote Due Tuesday...

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

View Full Document Right Arrow Icon
Homework 6, Econ 606 Jonathan Heathcote Due Tuesday April 18th Consider the Huggett (1993) economy. Use his benchmark parameter values: period length is two months, β =0 . 96 (annual basis) coe cient of relative risk- aversion σ =1 . 5 ,e h =1 ,e l =0 . 1 ( e h | e h )=0 . 925 ( e h | e l )=0 . 5 Consider a stationary equilibrium. 1. In this equilibrium what is average income, and what is the average dura- tion of an unemployment spell? Set the borrowing constraint equal to one year’s average income. Con- struct an equally-spaced grid on asset holdings, with a maximum value equal to 3 × average income. Let the number of grid points N =2 0 . Suppose the interest rate r =3 . 4% (annual basis) 2. Use the Euler equation iteration procedure we outined to solve for optimal decision rules across the grid. 1 3. Imagine one agent, who starts out with zero assets and the high endow- ment. Simulate the evolution of the agent’s wealth, income and consump- tion for
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/10/2011 for the course ECON 601 at Cornell University (Engineering School).

Page1 / 2

HW6 - Homework 6, Econ 606 Jonathan Heathcote Due Tuesday...

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