102, ALTERNATIVE SHOCKS: HOUSEHOLDS 7 soa o30t6) , A BTTGs a aE)" ina 1-08) O= aaTea- oF on 6 {aie coy “TT Gst ae 2, Bovplayment Nom, cri (2), (2), (8) and (20} we tain tho ogame of cenplernent sort >a ESSeacrcaea-aaiech cosa ‘West that the qusatity faker dzpends postive on tho shod Gy. We ots Ut fa = Gg me obtay he Fone of tsi 103, 10.2 Alternative shocks: households We comer aga the mocel of setion 102, ut wo sall now introduce Socks en she propensity to conmne and on the ec of wore So the sey Finction become Sst letones~ 6 el] ‘wre ¢ cs demand shod aoe 6 a bor eapply shock, Te ret ofthe {bode ie cxacly the sane a i gtr 10, section 103, 10.2.1 Questions 1 Devive the mast esi, snd compute the opeimal conremtion| te wostnea ar a fnction of the hosts eb 2, Charatrie the euifum quailty of labor. How dons i eat to sh? ™ (CHAPTER 10, COMPETITIVE BUSINESS CYCLES 10.2.2. Solutions 1. Consunption and investesent “The fint ere conditions fr the fi ave hye fom problem IO. As foethehowshol, they bene awk 20s) ea) = aan rons) 2 8B. Desf) 0a) ‘Combing rn we Sh wasn (Settt) waste. #098 (Sass) ay 98 (as) cao ich cote: ee roar) We the ae 4 de ous) the aa ana) 1-09 an O" att asa"103. INCOMPLETE CAPITAL DEPRECIATION a 2 Baguiibram smpyment Now, hin (20) with conn (4) at (18) moan ; aX nr(i)= 0-9 = any Stet ah (0) oe st ‘eee tha he qnsty af labor nor depends on the swo shock 8 and & 10.3. Incomplete capital depreciation ‘We wil save ns the model of section 104, duro Hescowit an Samer (Qo01), Ax compart wt the standard REC mode), the eee charge ‘hat we replace the truitonl eminton depicting the evlution of etal: Kin=W-OKth 0<5S1 ty the flowing loess aporonation: Ki = ‘The potion fanon uit, debs Yom agai un the houses bali conteit Cob meet ‘sinre 6 notes th anginal produto of pea. The Yonsebold ros ‘nites the expectation of swt BDA toot 10.8.1 Questions 1 Gio the et onder cantons 2, Compt the rine of enmnpsion advent to output {Compute the level of employment. » CHAPTER 30. COMPETVTIVE BUSINESS CYCLES 10.3.2 Solution 1. The Girt order conditions| Houseblde maximlae thir wiry subject to tse be const and the eaation of sssumilatin of expla The caxesparding Lagrangran is the expected wa of Se ene Pai + TG (AK Ki) 4 SP leat m2) ana ‘Tw Sit order conditions fr contin, Instant, cpitel and nbor salt 09 040 6 — BB [Deamon + (LARA Cra] (0.28) es caso oe ile wa oie simon ontn ots ony 2: Bott conan i ert Conia aoe nates (St) 40-002) cossctoinst—sie(Bt) oan shen ses104, A RBC MODEL WITH GENERATIONS a cas) Se canst) (ona 2 roplayment Filly equations (20), (2), (28) ul (1) sds eostase Walaa quase iy of aboe Ly now vn by ergy = Gaaltaes a 033) Tair 058 10.4 A RBC model with generations "Wo wil ey and sive antsy a simp mode! with geareutions where as inal lovstnent and consumption can nea? quie dine! 1 0. stiity shocks ‘The oda is alapod fear Hulinn (100), who ste ‘he ere ger ease whire ages lve posivs probaly of date ‘asso thst the population grown a the rate, asl the apay of Iebor alo groms atthe eae. Bac geneeion of honsebols Hoes eve, otis nly in the Fst peri of ie, and consumes fn ll pees iy ‘ving ner the frm of atl. The hewabeld of gencration + ba Fost Sotoec, hh nine a oi Co Kissie t Ot Kin =Ri oe [ically the proton foretion CoblsDowgl % axes 2 CHAPTER 10. COMPETITIVE BUSINESS CYCLES 10.4.1 Questions 1 Conpate the values of coreunprion ond fmsatment az fnations of capt aad oat 2 Show how consumption and lnvestuaut respond to tela shocks 10.4.2 Solution 1. Consumption and investment ‘Thehossclls maximize ltertenpeva tty subject othe varous budget constr. The componding Lapangeon the expected ws 8 ogee + Bele ~~ Ke Eset WRK G— Rial) 0) sd te fe onder eonclon: wer coy wer aay oe et na an i nn wan sh heft ae ton (8 io Sa (Sey) co hich cove Cer Set We se Hat ll boatlds, whether the income comas om wages or captl, haven propenity to conmume aqua to. Sins otal inane, Tnctuing undepreitd capita, is equal to Ye (I~ 3), we Sad that consumption, net period's capil oo invest are gan by205, ARBOMODEL WITH AUTOCORRELATED SHOCKS 8 Gan m+0-9%) ano Kigy= B+ O81 aay Lamy 0-348 ane) 2. The response to technological shocks [Now lt ur real the preduetion Simeon YAK e048) Iaseting (8) ito (40), (40) and (42), we express te above values a5 6 function of eke Kins = BAUR # LG 048) Cau TAKEE 1-8 005) = BARE 8 408) (00.8) -Tosctve completely the mol whieh we shal not do because becomes ‘quite edions), ou can ost st the dynes of expt sng equation (44) nd then roe tz equations (48), 8) and (46) to eben th dans of outer, consumption and instal 10.5 A RBC model with autocorrelated shocks ‘We sll study hae tae mode of appendix 102, bu, instead of assuming tht tesizology shocks seid wie sien, we shal era thn they te sstecolated ucpt fo that ehangs, theres of the mode Is eacty the sae a CHAPTER 20, COMPETITIVE BUSINESS CYCLES 10.5.1 Questions 3, Telling th tian mod sin appt 102, drive dati gute tion Baling rooms vats of eta 2, Canjcene a scutlon fr capa dynes of the fxm fg ARH do, Compute thera ales ofA ant gen copare she to vals found in appenic 102. 10.5.2 Solution 4. The dynamics of capital Tn appendc 102 we deriv the dame uation for eeptl In he casa f=. A number of equstions are ocualy sil wld whip > 0, notably fcrntons (102), (21) and (10). Leginearazng and combining thom We as WB tea = ee + OEE, aia — (2 — a2) ge) o4r) tan JH6-0nte cous st sa appente 202 p88 io or ‘We coubise two estos (47) and (8) to obtain a sie aie exon ncaa cas) C4220 BEilncy Bem Boes~ $60 + cose cast Becoue the preity sack a msbregetive, we hatstis dea ete pet ou ate eC ene cosa pe asesone teens ican Jas aoss 2, The autoregressive root and the Impact of teshmnology shocks ‘As ts append 10.2 we conjecture solton ofthe fens kare Mii toor 954) oratng (54) and taking Ye portation a fe bla: Bilge 8h #3004 6B 2058) Inset (62), (4) and (68) into (5). We ota po+ra+o-at—e w + [ea ra4e- ars s9e— Be (0-0) (anss) ‘isting 10 sro the vm inky we Bed that 8 @ oot of ho eae ‘sie polmomst: BO)- eRe segasrao (957) Wie sats the satrap root 1 sdution af some uations ‘in approx 102 (equation 107), ads ths in particu idepentens ofp Now we shall se tot tho coo of pact of tedacogy sods date Sepend on p Indend equating 2 sr the ern yeh U4 24¢-arsolo= se —p+ cose) hich ing (57), came eaten (repo 20¢0 e+ 2. (e050) sd ¢ thas dapends onthe antoceedlation oof tecnlogy shocks. For p =O ‘aon (50) sboplifes tothe much simplar exprumion $= SE Hint wo ‘obtained in appendix 162 equeion 108). rs CHAPTER 10. COMPETITIVE BUSINESS CYCLES