ECON 702 Midterm: 702_aug2014_krueger
Document Summary
1 a pure exchange economy with house- hold heterogeneity. Probabilities of event histories are given by (cid:25)t(st): there are 2 di erent types of households with equal mass normalized to 1. Households potentially di er in their endowment stream fei. 0 and their time discount factors (cid:12)i 2 (0; 1): preferences for each household over consumption allocations ci = fci t(st)g; their initial asset position ai t(st)g are given by ui(ci) = 1xt=0 xst2s t ((cid:12)i)t (cid:25)t(st)u (ci t(st)): where u (:) is strictly increasing and strictly concave: suppose that s = fs1; s2g and that (cid:25)t(st) is markov with transition matrix (cid:25)(s0js) =(cid:18) (cid:26) 1 (cid:0) (cid:26) (cid:20) (cid:19) where (cid:26); (cid:20) 2 [0; 1] are parameters. For which parameter combinations ((cid:26); (cid:20)) is the associated invariant distribution (cid:5) (a) unique? (b) satis(cid:133)es (cid:5) = (0:8; 0:2): suppose that households can trade a full set of arrow securities. 0 = 0: a sequential markets equilibrium, for arbitrary fai.
