(b) (I didn’t explain following issues, but please try to solve by checking lectureslide or Sargent’s text book.) Guess and Verify: Guess that the value function is described as V (k) = constant + v 1 ln(k). Derive the value function by the method of guess and verify. For now,
derive only v 1 . We don’t have to derive the constant. (3 points)
2.4 (2 points). Why was the unemployment rate in Japan lower than the other coun- tries? Explain some hypothesis. (5 lines )
2.5 (2 points) Replicate a graph of UV curve in Japan in page 23 of lectureslide for ”Unemployment.” The sample period is from 1973 to 2009.
Learning Dynamics and the PEA.
• Suppose the agents in our model economy were not able to compute the true conditional expectations function E.
• Let ψ(γ t , ·) denote the agents’ forecast of φ(·) using recent estimates γ t . Note that the
veloped country (A), the saving rate is 28 percent, and the popu- lation growth rate is 1 percent per year. In a developing country (B), the saving rate is 10 percent, and the population growth rate is 4 percent per year. Both countries’ technological growth rate is 2 percent per year, and the depreciation rate is 4 percent per year. Answer the following questions.