ECO 318, Winter 2014, HWs #3 and #4
This assignment consists of two separate parts. The rst, a set of questions about the innite
horizon model, constitutes HW #3.
Consider the Innite Horizon Model from class. Now assume, that as in the Solow Model, capita
These notes follow the paper Growth Cycles by Evans, Honkapohja, and Romer.2 It represents a modern extension of the growth models that we have examined.
Recall Endogenous Growth
All students are familiar with Paul Romers basic endogenous g
ECO 318: A Primer on Difference and Differential Equations1
Almost all macroeconomic models can be represented as systems of differential (if time is
continuous) or difference (if time is discrete: 2008, 2009, 2010) equations. We thus proceed with
ECO 318, Winter 2014, HW #2
Due at 9:30 on Monday, 2/2
Instructions: Answer all questions. Show your work. Stay classy.
Consider the following dierence equation:
yt = byt1 + et
where et is a random shock.
1. Represent yt as a function of y0 and a seri
Chapter 3 examines the conditions needed for monetary policy to ensure a unique equilibrium. It also quanties the eects of monetary policy for an empirically plausible calibration.
But it stops short of saying what monetary policy is best.
The Innite Horizon Model1
This model adds microfoundations to a growth model. Although there are other dierences
with the Solow Model, the main one is that the savings-consumption choice results from rational
households maximizing their utility rather tha
The Solow Model1
Some General Comments on Growth
Before we begin the Solow Model, lets consider a few basics on growth, most of which you
have seen in your previous coursework:
1. Our goal, and this will be equally true with business cycle models later in
Money in a Classical Model
These notes follow Gali Ch. 2. The model that we develop is a stepping stone toward our
New Keynesian model. It lacks two things that make the latter Keynesian; sticky prices and
This model illustrates
The Basic New Keynesian Model
These notes follow parts of Gali Ch.3. They develop the basic New Keynesian Model. This
framework, rst developed in the 1990s, has emerged as the dominant framework for the analysis
of business cycles, especially those that c