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

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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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