a Consider a model in which, in every period, an agent must select the level of consumption Ct and the level of leisure

[answerhappygod]

A Consider A Model In Which In Every Period An Agent Must Select The Level Of Consumption Ct And The Level Of Leisure 1 (219.72 KiB) Viewed 40 times

A Consider A Model In Which In Every Period An Agent Must Select The Level Of Consumption Ct And The Level Of Leisure 2 (494.75 KiB) Viewed 40 times

a Consider a model in which, in every period, an agent must select the level of consumption Ct and the level of leisure Lt. Having a constant endowment of H hours at each time period, the de- cision on Lt pins down the labour supply Nt = H – Lt. The agent cannot save intertemporally but must consume everything he earns in each period. The representative agent has preferences according to log(Ct) + Olog(Lt) (9) and is subject to the budget constrain Ct = w(H – L) (10) =
(iii) Suppose this model is approximately correct in explaining the data of three variables (W7, Ct, Nt), in that wt is driven by some exogenous Normal distribution, and (Ct, Nt) are driven by the equilibrium of the model plus a white noise. Put differently, at each time period t the variables (Ct, N+) equal the equilibrium value predicted by the model, plus an exogenous term, and wt is determined exogenously. Start from the structural VAR representation Ayt = c+ A+Yt-1 + St, (11) and explain how the SVAR parameters (A, A+, C) relate to the fundamental parameters of the underlying model. Does the model admit a recursive representation? (7 marks) (iv) Following the point above, suppose you have data on (Ct, wt). Study the regressions = р Ct = Q1+ Bl;Wt-i + Ult (12) i=1 р Ct = Q2 + B2iW2-i + Uzt = (13) i=0 Note that the second regression also includes the contem- poraneous value of the real wage. Explain if any of the two regressions above can consistently estimate any structural or reduced form parameter of the model. (8 marks)