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    Exam February 2013

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    zaur
    This document provides the instructions and problems for an exam in Advanced Macroeconomics. The exam contains two main problems. Problem 1 has six sub-questions covering topics like Kaldor's stylized growth facts, convergence in economic growth, Arrow-Debreu securities, the HP-filter, and log-linear approximations of the Euler equation. Problem 2 considers an economy with a single consumption good that can be used for capital or consumption, where the capital stock is bounded and the social planner's problem is formulated sequentially and recursively, both for deterministic and stochastic output.

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    Exam February 2013

    Uploaded by

    zaur
    33 views3 pages
    This document provides the instructions and problems for an exam in Advanced Macroeconomics. The exam contains two main problems. Problem 1 has six sub-questions covering topics like Kaldor's stylized growth facts, convergence in economic growth, Arrow-Debreu securities, the HP-filter, and log-linear approximations of the Euler equation. Problem 2 considers an economy with a single consumption good that can be used for capital or consumption, where the capital stock is bounded and the social planner's problem is formulated sequentially and recursively, both for deterministic and stochastic output.

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    This document provides the instructions and problems for an exam in Advanced Macroeconomics. The exam contains two main problems. Problem 1 has six sub-questions covering topics like Kaldor's stylized growth facts, convergence in economic growth, Arrow-Debreu securities, the HP-filter, and log-linear approximations of the Euler equation. Problem 2 considers an economy with a single consumption good that can be used for capital or consumption, where the capital stock is bounded and the social planner's problem is formulated sequentially and recursively, both for deterministic and stochastic output.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views3 pages

    Exam February 2013

    Uploaded by

    zaur
    This document provides the instructions and problems for an exam in Advanced Macroeconomics. The exam contains two main problems. Problem 1 has six sub-questions covering topics like Kaldor's stylized growth facts, convergence in economic growth, Arrow-Debreu securities, the HP-filter, and log-linear approximations of the Euler equation. Problem 2 considers an economy with a single consumption good that can be used for capital or consumption, where the capital stock is bounded and the social planner's problem is formulated sequentially and recursively, both for deterministic and stochastic output.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Volker Hahn, Fuzhen Wang University of Konstanz

    Advanced Macroeconomics I, WT 2012/13

    Exam
    Date: 18 February 2013, 10:00 - 11:30

    You may answer in English only.


    The duration of the exam is 90 minutes.
    Please use only the designated white sheets for your answers.
    You must not use any books, notes, etc.
    If you use mathematical formulae, define the respective vari-
    ables (unless the variables have been defined in the question).
    Problem #1:
    Various issues (15 points)
    (a) Name three of Kaldors stylized growth facts. (1.5 points)
    (b) Explain the terms absolute convergence and conditional
    convergence. (2 points)
    (c) Consider an exchange economy with infinitely many periods
    t = 0, 1, 2, .... In each period, there are three possible states
    {a, b, c}. The initial state in period 0 is a. Specify the set of
    possible histories at dates 1 and 2. Describe precisely which and
    how many Arrow securities can be traded at t = 2 for a partic-
    ular history s2 in a sequential-markets equilibrium. (4 points)
    (d) Explain how the prices of arbitrary assets can be computed
    in an economy with a full set of Arrow-Debreu securities.
    (2 points)
    (e) Explain for which purpose the HP-filter can be used and how
    HP-filtered data can be computed. (2.5 points)

    (f) Consider the intensive-form Euler equation ct+1 /ct = 1/2 from
    2kt
    the social planners problem in the neoclassical growth model

    with full depreciation and production function f (kt ) = k t .
    Compute the level of capital (in intensive form) on the bal-
    anced growth path and compute a log-linear approximation of
    the Euler equation around the balanced growthpath. You may
    1
    use the following approximations: 1+x 1x, 1 + x 1+ 12 x,
    1
    or 1+x 1 12 x for small x. Please give an economic inter-
    pretation of the log-linear approximation of the Euler equation.
    (3 points)

    Problem #2:
    Consider an economy with a single good that can be used as cap-
    ital or for consumption. Output is given by Yt = A K t in each
    period t = 0, 1, 2, ..., where Kt is the capital stock and A a strictly
    positive parameter. There is no labor. Capital depreciates at rate
    (0 < < 1). The instantaneous
    utility function of the representa-
    tive household is u(Ct ) = Ct . Future utility is discounted by the
    factor (0 < < 1). The population size is constant. The ini-
    tial
    p capital stock K0 is exogenously given and strictly smaller than
    A/. (21 points in total)

    2
    (a) Is the capital stock guaranteed to remain in a compact set, i.e.
    is it bounded? Provide a proof. (3.5 points)
    (b) Formulate the social planners optimization problem as a se-
    quential problem. (2 points)
    (c) Formulate this problem recursively. (2 points)
    (d) Write down equations that determine the social optimum. You
    dont have to compute the social optimum. (4 points)
    (e) For the rest of problem #2, suppose A was random and equal to
    A or A in each period, where 0 < A < A. Which assumptions
    do you have to introduce to ensure that the process governing
    the evolution of At satisfies the Markov property? (2 points).
    Assume that this Markov property holds in the following.
    (f) Formulate the social planners problem recursively under the
    assumption of a stochastic At introduced in the previous ques-
    tion. Specify expected values explicitly with the help of prob-
    abilities. (2 points)
    (g) Specify the Euler equation for this problem. (2 points)
    (h) A recursive competitive equilibrium (RCE) of this economy
    consists of a policy function and a price function. On which
    arguments does the price function depend? Explain. Which
    relationship does the policy function describe? On which ar-
    guments does the policy function depend? Explain. Which
    equation specifies how the aggregate capital stock evolves in
    an RCE (3.5 points)?

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