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UNIVERSITY OF CALIFORNIA
Economics 202A
DEPARTMENT OF ECONOMICS
Fall 2011
M. Obstfeld/D. Romer
Problem Set 7
Due in lecture, Tuesday, November 22, 2011
1.
S
addlepath of the qtheory model.
(Special ground rules for this problem:
(1) You must try it
first under exam conditions – no readings, no notes, no help.
(2) You may then look at lecture notes
and readings, but not consult with others or look at the midterm solutions.
(3) You may then look at
the midterm solutions and/or consult with others.)
Consider the 2 equations of the qtheory model,
a.
Define the steady state of the model, (
Show that the model’s linear (Taylor)
approximation in the neighborhood of the steady state takes the form:
[
]
′ ≈ G
′,
where G =
Be sure to show how A, B, and C depend on exogenous parameters, the steadystate values of q and K,
and/or the properties
of π(
·) and f(·).
b.
Show that the characteristic roots of the preceding 2x2 matrix are:
where λ
1
> 0 and λ
2
< 0. Please indicate why the second condition holds.
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This note was uploaded on 02/28/2012 for the course ECON 202A taught by Professor Akerlof during the Fall '07 term at University of California, Berkeley.
 Fall '07
 AKERLOF
 Economics

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