ECON 702 Midterm: 702_prelim_Krueger
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1 the stochastic neoclassical growth model with heterogeneous households. The resource constraint in the economy is given by. Ct + kt+1 = ztk (cid:11) t l1(cid:0)(cid:11) t + (1 (cid:0) (cid:14))kt: where upper case letters denote aggregate variables. The technology shock zt follows a (cid:133)nite markov chain with transition matrix (cid:25)(zt+1jzt) and associated invariant distribution (cid:5): denote by zt = (z0; z1; : : : ; zt) the history of these shocks. The initial capital stock in the economy is given by k0: There are two groups i = 1; 2 of households of equal measure (normalized to 1). Here (cid:18)i is a (cid:133)xed parameter, for both i; and we assume (cid:18)1 + (cid:18)2 = 1. Each household of group i owns initial capital stock ki. 0 = (cid:18)ik0; and thus: let k1. Cca where (cid:26)1; (cid:26)2 are parameters with (cid:26)j 2 (0; 1) for j = 1; 2: find the invariant distribution(s) associated with (cid:25):
