Unformatted text preview: 1 R t-1 ω ( θ 1 ) = 1 βR E ³ 1 u ( c t +1 ( θ T )) | θ t ´ 3.1.1 Inverse Euler Equation Consider again the original planning problem ( 43 )(with incentive constraints). Let ( c * ,y * ) be the solution to this problem. Now consider the following perturbation around ( c * ,y * ) y = y * c s = c * s for all s 6 = t,t + 1 (for ﬁxed t ) for all histories θ t u ( c t ( θ T )) + βu ( c t +1 ( θ T )) = k + u ( c * t ( θ T )) + βu ( c * t +1 ( θ T )) for all θ t +1 such that π ( θ t +1 | θ t ) > 40...
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- Fall '10
- Calculus, Following, Hold, Leonhard Euler, Euler's formula, Θt, Euler characteristic