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I have the attached homework project I need help with. Please let me know if anyone can help.

Econ 4373-1: Economics of Financial Crises
Homework assignment 2
The due date is April 12 2020. To receive credit, answers must be prepared in the form of a
report of at most 5 pages, 10-12 point font, and e-mailed to me Reports that do not satisfy
these conditions will not be considered.
Please attach the spreadsheet file and the code that you used to make your calculations, but
treat it as reference. Do not assume I will be going over it, the report should be self-contained.
Think of this assignment as practice for creating professional reports in your future job. Put
some effort into writing and editing it nicely. In particular, grammar and spelling errors will
be penalized. Make sure your graphs are legible and clearly labeled.
Problem 1
Choose your favorite country among the European PIIGS (Portugal, Ireland, Italy, Greece,
Spain). Find annual time series data starting around 1970s on real output, real investment,
employment, working-age population and hours worked. Assume that production technology
is described by the function Yt = At Ktα L1−α
, and that the resource constraint is Ct + It = Yt .
t
i. Discuss whether the country of your choice has experienced a Great Depression in the
last 20 years, as defined by Kehoe and Prescott (2007). If not, which criteria of the
definition are not satisfied and by how much?
ii. Use real investment data to construct a series for the capital stock following the rule
Kt+1 = (1 − δ)Kt + It
KT0 = K̄T0
where T0 is the first year for which you have data on output and investment. Calibrate
the parameters for annual depreciation rate δ and capital share α. Choose K̄T0 so that
KT0 +1 /KT0 = (KT0 +10 /KT0 )1/10
iii. Repeat part ii., but now choose K̄T0 so that
TX
0 +9
KT0 /YT0 =
!
Kt /Yt /10
t=T0
iv. Compare the two series constructed in parts ii. and iii. Plot them on a graph.
v. Conduct a growth accounting exercise for your economy. Decompose growth fluctuations in real GDP per working-age person into three factors according to:
1
Yt
= At1−α
Nt
1
Kt
Yt
α
1−α
Lt
Nt
Discuss what happens during different time periods and tie them to actual events in
recent economic history of your selected country.
Problem 2
Now consider a growth model with infinitely-lived, representative consumer. Given deterministic sequences of total factor productivity and population {At , Nt }∞
t=t0 the representative
household solves the problem
max
∞
X
{Ct ,Lt ,Kt+1 }∞
t=0
β t−t0 γlog Ct + (1 − γ)log (Nt h̄ − Lt )
t=t0
subject to (for all t = 0, 1, ...):
Ct + Kt+1 − Kt = wt Lt + (rt − δ)Kt
Kt0 = K̄t0
A representative firm solves the static profit-maximization problem in each period t:
max
{Kf,t ,Lf,t }
α
At Kf,t
L1−α
f,t − wt Lf,t − rt Kf,t
subject to: Kf,t ≥ 0; Lf,t ≥ 0
All markets must clear in the general equilibrium.
i. Use the data from Problem 1 (and any additional data that you may need) to calibrate
the parameter values for β and γ.
ii. Summarize your calibration with a table and make sure to include all parameters
in your model. Discuss your assumptions behind the most important/controversial
parameter values.
iii. Download the MATLAB codes to solve this model from Blackboard. Prepare the time
series for TFP and working-age population. Prepare the input files dataBase.txt and
paramBase.txt containing your input data and calibrated parameter values. Solve the
model in MATLAB.1
iv. Plot the model-induced time series for Yt /Nt , Lt /Nt and Kt /Yt against those from the
data. Discuss what happens to your economy before and during the financial crisis.
v. (EXTRA CREDIT) Survey the recent literature in academic economics that seeks to
understand the sources of economic collapse in your country. Do their answers align
with your findings? If not, or it is not clear, then where might the difference be coming
from? What important elements is our model potentially missing?
You can use Matlab on one of the University’s computers, or download it to your own machine from Access
→ Software Download. You need to create a MathWorks account using the license number provided by the
University.
1
2
...

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