ECN 260B Final: ECN 260B Final Exam Fall 2017
Document Summary
Answer question #1 and any 2 of the remaining 3 questions (so answer 3 questions total): small open economy with nontraded goods and taste shocks. Consider the following small open economy problem: s t b s. N s p y s n s rb s s. Here ct is consumption of traded goods, cn is consumption of nontraded goods, is a taste shock, p is the relative price of nontraded goods in terms of traded goods, and. Bt+1 is a riskless bond in units of the traded good with constant return r. assume the endowments of traded and nontraded goods (yt and yn, respectively) are exogenous and constant in all periods. 1 : set up and work through the dynamic programming problem to derive intratemporal and intertemporal optimality conditions. Interpret these: suppose a temporary taste shock that raises t . 1 intertemporal optimality conditions derived above, infer what is the effect on the following: and.
