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AdvMacroII Ex 1

The document outlines exercises for an Advanced Macroeconomic Theory II course, focusing on statistical properties of time series and utility functions. It includes questions on sample variance, covariance, expected values, Lagrangian formulation, and demand functions related to budget constraints. The exercises require analytical reasoning and application of concepts in macroeconomic theory.

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9 views2 pages

AdvMacroII Ex 1

The document outlines exercises for an Advanced Macroeconomic Theory II course, focusing on statistical properties of time series and utility functions. It includes questions on sample variance, covariance, expected values, Lagrangian formulation, and demand functions related to budget constraints. The exercises require analytical reasoning and application of concepts in macroeconomic theory.

Uploaded by

박영선
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Advanced Macroeconomic Theory II (2952702)

Exercise 1: Due in class Thursday, November 24

1. Given that there is an original series of independent and identically distributed random
variable with mean zero and variance, v . These random variables are denoted  t for
t  1, 2,...T . That is we have a time series 1 ,  2 ,... T . Let’s suppose that a new series yt is
produced for t  3, 4,...T via

yt  0 t  1 t 1  2 t 2

i.e, by taking a moving average with weights with 0 ,1 ,2 . The most familiar moving
1
average might be 0  1 ,   2  , but this is clearly just a special cast of the above.
3

1.1 What is the sample variance of yt ?


1.2 What is the sample covariance between yt and yt 1 ?
1.3 What is the expected value of the variance (if one has no information on the  ' s
except for their distribution)?
1.4 What is the expected value of the sample covariance between yt and yt 1 ?

2. Suppose that there is a zero mean time series random variable for which the following
three moments are well-defined.

Ext2  V , E[ xt xt 1 ]  C and E[ xt21 ]  V

Suppose further that yt  0 xt  1 xt 1

2.1 What is E[ yt2 ] ?


1
2.2 If 0  1  is E[ yt2 ]  E[ xt2 ] ?
2

3. Suppose that there is a utility function defined over N goods of the form
1
1 N  
u  
1    n 1
 nCn 

N
with   0 ,   1 ,  i  0 and 
n 1
n  1 . Suppose also that the budget constraint takes the

form
N

Pc
n 1
n n I

1
3.1 Form a Lagrangian for this problem and find the first-order conditions?
3.2 Model like this are sometimes studied by using the idea of an aggregate good
1
N 
c     n cn 
 n 1 

1
produced from c1 ,..., cn and from which agents derive utility, u (c)  [c]1 . It is then
1 
natural to think of the following two-stage optimization. First, minimize the cost of
producing a unit of good c . Second, evaluate the utility that can be derived given the budget
constraint from units of c .

Explain why the Lagrangian shown below


N N 1
L   Pn cn   ([  n cn ]  1)
 

n 1 n 1

is appropriate for minimizing cost subject to the unit production constraint. Find the first
order conditions?

3.3 Demand functions are sometimes defined, using  , as measure of income and
wealth. In this context, fine a demand function which makes the quantity of cn depend only
on  , Pn ,  n and 

3.4 Use this demands to determine the level of  that is consistent with the production
constraint.

Pn 1 
3.5 Show that the demand for each good can be written as cn  ( ) . What is
P n
the relationship between  and  ? What is the relationship between  and P ?

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