0
$\begingroup$

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.

$\endgroup$
  • $\begingroup$ 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 $\endgroup$ – user20105 Oct 18 at 18:49
  • $\begingroup$ Thank you, just realized it $\endgroup$ – user24609 Oct 19 at 16:52
  • $\begingroup$ Please consider editing this so that the question is not in the form of an image. $\endgroup$ – Art Oct 21 at 6:59

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.