316-466 Monetary Economics Final Exam
1. Flexible-price monetary economics (90 marks). Consider a stochastic exibleprice money in the utility function model. Time is discrete and denoted t = 0, 1, .
There is a representative consumer who faces a random se
316-466 Monetary Economics Homework 3 Solutions
1. Plugging the nal good rms production function into its objective gives
Z 1
1/ Z 1
t
t (st )
yt (i, s ) di
Pt (i, st1 )yt (i, st )di
P
0
0
The key FONC associated with this maximization problem is
Z 1
(1)/
316-466 Monetary Economics Homework 2 Solutions
1. Mt (st1 ) was chosen in the previous period before the realization of the state st at
the beginning of period t so it depends on st1 and not on the entire history st . Put
dierently, Mt (st1 ) is predeter
316-466 Monetary Economics Homework 1 Solutions
1. Since consumers will never waste any valuable resources, I will write all constraints
with equality. The constraints of the consumer can be combined to give
ct + kt+1 = wt nt + (1 + rt )kt
(1)
with some i
316-466 Monetary Economics Midsemester Practice
1. Asset pricing. Consider the Lucas (1978) asset pricing model where a representative
consumer has preferences
(
)
X
E0
t U (ct ) ,
0<1
t=0
with strictly increasing, concave period utility U (c) and with o
316-466 Monetary Economics Midsemester Exam
1. Welfare costs of ination. (30 marks). Consider the following money in the utility function model. Time is discrete and there is no uncertainty. There is a single
representative consumer with time-separable pr
316-466 Monetary Economics Midsemester Solutions
1. Welfare costs of ination. (30 marks).
(a) (5 marks). The Lagrangian for this problem can be written
X
X
Mt+1
t
L=
+
U ct ,
t (Pt yt + Mt + Bt Tt Pt ct Mt+1 qt Bt+1 )
Pt
t=0
t=0
The key FONC include, for