1
$\begingroup$

Numerical Solution Using Excel about optimal consumption of households

I'm not sure how to solve this problem. I'm given the discount factor, interest rate, probability of high income shock, and various income shock sizes that I need to use to compute optimal consumption. This is confusing because I'm not given "c1" in the example, so I have to guess an answer for it. What should I do? The math should be simple once I figure out c1.

Improve this question
$\endgroup$
2
  • $\begingroup$ c1 can be retrieved from the equation since you have all other information (i.e. the only unknown is c1 so once you plug in all the other values given to you you can get the c1 value so that the equality holds). Of course, c1 will be different for each epsilon value $\endgroup$
    – Ali
    Commented Oct 18, 2019 at 18:49
  • $\begingroup$ Please consider editing this so that the question is not in the form of an image. $\endgroup$
    – Art
    Commented Oct 21, 2019 at 6:59

0

Reset to default

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.