ECON 102 Lecture Notes - Lecture 9: Partial Derivative, Procyclical And Countercyclical
Document Summary
To identify economy"s stochastic behaviour, assume that the economy is in steady state. Nb slide 14 gives equations that characterise equilbrium to give those that are in my notebook. Nb in steady state, there is no time in the vraibles. Impluse response function (irf) = partial derivative to the whole system for a one time shock. Traces response of economy to a shock today keeping all future shocks equal to 0. Like a partial derivative of an economy relative to shock in one period. In real economy, we get shocks all the time. Shows what labour, output, investment, and consumption looks like in first period after shock. We have shocks in every period where sigma >1, and delta isn"t equal to 1. So we can look at simulations from the eceonomy by plugging in to the computer and hit economy with shocks and solve equations period after period.
