Hansens basic RBC model

George McCandless
UCEMA
Spring 2007

Hansens RBC model

Hansens RBC model

First RBC model was Kydland and Prescott
(1982) "Time to build and aggregate uctuations," Econometrica
Complicated
lagged cumulative investment
strange utility function
Lots added to look for presistence
Hansens model much simpler
(1985) "Indivisible labor and the business cycle," Journal of Monetary
Economics

Simple
Added indivisible labor to gain persistence and covariance with output
Set rules for RBC game
Match second moments
Newer rule: match impulse response functions
Hansens basic model
Robinson Crusoe maximizes the discounted utility function
max

1
X
t=0

u(ct ; lt )

The specic utility functions

u(ct ; 1

ht ) = ln ct + A ln(1

ht )

with A > 0.
The production function is
f ( t ; kt ; h t ) =
t

1
t kt ht

is a random technology variable that follows the process

=

t+1

for 0 <

+ "t+1

< 1. "t iid, positive, bounded above, E"t = 1

=) E

is 1 and

t+1

> 0.

Hansens basic model (continued)

Capital accumulation follows the process
kt+1 = (1

)kt + it

The feasibility constraint is

f ( t ; kt ; ht )

ct + it

Bellmans equation
The basic Bellmans equation
V (kt ;

t)

= max [ln ct + A ln(1

ht ) + Et [V (kt+1 ;

ct ;ht

t+1 )

subject to
1
t kt ht
t+1

kt+1

ct + it ;
=
t + "t+1 ; and
= (1
)kt + it :

Simpler to write as
V (kt ;

t)

max ln

kt+1 ;ht

+A ln(1

1
t kt ht

+ (1

)kt

ht ) + Et [V (kt+1 ;

kt+1 and ht are control variables

First order conditions

kt+1

t+1 )

t ]]

t ]]

First order conditions are

@V (kt ; t )
@kt+1

1
+ (1
)kt
+ Et [Vk (kt+1 ; t+1 ) j t ]

0=

1
t kt ht

kt+1

and
@V (kt ;
@ht

t)

0 = (1
A

1
+ (1

1
t kt ht

)kt

t kt ht

kt+1

1
1

ht

The Benveniste-Scheinkman envelope theorem condition is

@V (kt ;
@kt

t)

1
+ (1

1
t kt ht

)kt

t kt

kt+1

1 1
ht

+ (1

kt+2

Simplifying the rst order conditions

First order conditions can be written as
1
+ (1

1
t kt ht

"

Et

) (1

ht )

)kt

kt+1

1 1
t+1 kt+1 ht+1
1
t+1 kt+1 ht+1 + (1

+ (1

)kt+1

and
(1

t kt ht

1
t kt ht

=A

+ (1

In equilibrium,
ct =

1
t kt ht

+ (1

)kt

kt+1

Simplifying the rst order conditions (continued)

Factor markets give
rt =

t kt

1 1
ht

and
wt = (1

t kt ht

First order conditions are simply

rt+1 + (1
1
= Et
ct
ct+1
and
(1

ht ) wt = Act

Stationary states
3

)kt

kt+1

Stationary state value of h = ht = ht+1 is

h=
1+

A
(1

1
1

(1

i;

Stationary state value of k = kt = kt+1 = kt+2 is

k=h

"

(1

#11

How to study dynamics

1. Find the approximate Value function and Plan
(a) These will describe the dynamics within the precision of the approximation
(b) Can be complicated to nd
i. Especially if the domain of stochastic variable is large
(c) Can be impossible
i. If the model is not single agent
ii. If the model can not be approximated by social planner
2. Alternative approachs
(a) Log linear approximation of the model
i. After the optimization has been done
ii. After equilibrium conditions have been imposed
(b) Quadratic linear appoximation of the problem
Log-linearization techniques
Consider a function of the form
F (xt ) =

G(xt )
H(xt )

Taking logs of both side gives

ln(F (xt )) = ln(G(xt ))
The rst order Taylor series expansion
around the stationary state values x

ln(H(xt ))

 gives
F 0 (x)
(xt
F (x)

ln(F (x)) +

G0 (x)
(xt x)
G(x)
H 0 (x)
ln(H(x))
(xt x)
H(x)

x)

ln(G(x)) +

Log-linearization techniques (direct method)

In the stationary state
ln(F (x)) = ln(G(x))

ln(H(x)))

So the rst order Taylor expansion can be written as

F 0 (x)
(xt
F (x)

x)

G0 (x)
(xt
G(x)

H 0 (x)
(xt
H(x)

x)

x)

Remember that this holds only near x

An example using a Cobb-Douglas production function
Yt =

t Kt

Ht1

Take logs
ln Yt = ln

+ ln Kt + (1

) ln Ht

rst order Taylor expansion gives

ln Y +

1
Yt
Y

ln +

+ ln K +

+ (1

) ln H +

(1

Ht

Kt

Since in a stationary state

ln Y = ln + ln K + (1

) ln H

get
1
Yt
Y

1
t

Kt

K +

(1

)
H

That reduces to
Yt
+1
Y

(1
) Ht
Kt
+
H
K

Ht

Log-linearization techniques (Uhligs method)

Write the original variable as
f

Xt = XeXt
or

et = ln Xt
X

ln X

bring together all the exponential terms that you can

e

At Bt
AeAt B e
=
Ct
C e Cet

becomes

AB

eAt +

et
B

et
B

et
C

Reference:Uhlig, Harald, (1999) "A toolkit for analysing nonlinear dynamic stochastic models easily", in Ramon Marimon and Andrew Scott,
Eds., Computational Methods for the Study of Dynamic Economies, Oxford University Press, Oxford, p.30-61.

Log-linearization techniques (Uhligs method)

The Taylor series expansion (linear) gives
e

eAt +

et
B

et
C

eA+

e
C

e
B

+ eA+
=

So

e
B

e
C

et + B
et
1+A

eAt +
The approximation is

At Bt
Ct

et
B

+ eA+

et
C

AB
C

et
B

e
B

et ;
C

e
C

e
B

et
A

e
A

eA+

et + B
et
1+A

et
C

et + B
et
1+A

et
C

Log-linearization techniques (Uhligs method)

Some rules from Uhlig
e

eXt +aYt
et Yet
X
h
i
e
Et aeXt+1

Et [Xt+1 ]

et + aYet ;
1+X
0;
h
i
et+1
a + aEt X
h
i
et+1
= X 1 + Et X
6

e
B

e
C

et
C

e
C

Log linear version of Hansens model

The ve equations of the Hansen model are (adjusted)
1

ACt

Ct
Yt

=
=

rt

Ct
(rt+1 + (1
Ct+1
Yt
(1
) (1 Ht )
Ht
Yt + (1
)Kt Kt+1
1
K
H
t t
t
Yt
Kt
Et

))

We will do the log-linearization equation by equation

Log linear version of Hansens model
First equation
Ct
(rt+1 + (1
Ct+1

1 = Et

Et

"

CeCt
CeCet+1

r
et+1

re

+ (1

))

CeCt
CeCet+1

i
h
e
e
e
e
) eCt Ct+1
Et reCt Ct+1 +ert+1 + (1
h
i
h
et C
et+1 + ret+1 + (1
et
rEt 1 + C
) 1+C
i
h
et C
et+1 + re
rt+1 ;
= Et 1 + C

et+1
C

or (after cancelling the 1s and cleaning up the expections)

0

et
C

et+1 + rEt ret+1

Et C

Log linear version of Hansens model

Second equation
ACt = (1
e

ACeCt = (1
et
AC 1 + C

et
AC C

(1
"

(1

) (1
Y Yet
e
H

Y
1 + Yet
H

Ht )
et
H

et
H
#
1 H Y e
)
Yt
H
7

Yt
Ht
e

) Y eYt

(1

(1
(1

) Y 1 + Yet
Y e
Ht
H

given that in the stationary state

AC = (1

H Y
H

Log linear version of Hansens model

This becomes
et
C

Yet

Y
)H

(1
(1

(1

H )Y
H

so
et
0=C

Log linear version of Hansens model

Yet +

et
H
1 H

e t = Yet
H
et
H
1 H

The next three equations (in their Log-linear form) are

h
i
et + K (1
et K
e t+1
0 Y Yet C C
)K
0

et + K
e t + (1
0

where r = Y =K

Yet

et
K

et
)H

ret

Yet

Log linear version of Hansens model

The stochastic process is
t+1

+ "t+1

putting in the log dierence of the s

e

et+1

et

+ "t+1

the linerar approximation is

1 + et+1 =

So the simple version is

1 + et + "t+1

et+1 = et +

The log-linear version of the model

t+1

The equations of the full log-linear model are

et
= C

et+1 + rEt ret+1

Et C
e
et Yet + Ht
0 = C
1 H
h
et + K (1
et
0 = Y Yet C C
)K
0

et + K
e t + (1
e t ret
= Yet K

0
and

et
)H

et+1 = et +

t+1

Solving the log-linear version of the model

n
e t+1 Yet
The variables of the model are K
chastic variables t
Dene the state variables as

Dene the "jump" variables as

Yet

e t+1
K

et
C

et
H

ret

plus the sto-

h i
et
xt = K
2

3
Yt
6 Ct 7
7
yt = 6
4 Ht 5
rt
Dene the stochastic variable as
zt = [ t ]
Solving the log-linear version of the model
The model can be written as
0 = Axt + Bxt 1 + Cyt + Dzt ;
0 = Et [F xt+1 + Gxt + Hxt 1 + Jyt+1 + Kyt + Lzt+1 + M zt ] ;
zt+1 = N zt + "t+1 , Et ("t+1 ) = 0:
Where

6
A=6
4

3
0
K 7
7
0 5
0

6 K(
B=6
4
9

+ 1) 7
7
5
1

1
6 Y
C=6
4 1
1

3
0
0 7
7
0 5
1

1
1 H

1
C
0
0

0
1
0

Solving the linear version of the model

2
0
6 0
6
D=4
1
0

3
7
7
5

F = [0] ; G = [0] ; H = [0] ;

0

J=
K=

r
0

;
;

L = [0]
M = [0]
N = [ ]
Solving the linear version of the model
We look for a solution of the form
xt
yt

= P xt
= Rxt

+ Qzt
1 + Szt
1

Note that here C is of full rank and has a well dened inverse C

The solutions can be found from

0 =
R =

(F JC 1 A)P 2
C 1 (AP + B);
N0

(F

= vec JC

JC
1

(JC

A) + Ik

L)N + KC

G + KC

(AQ + D)

Explaining the solution

We look for the laws of motion of the model
xt
yt

= P xt
= Rxt
10

A)P

(JR + F P + G

and
S=

+ Qzt ;
1 + Szt :
1

KC

KC

B+H

A) vec(Q)

We begin by substituting the laws of motion into the two equations of the
model
Reduce each equation to one in which there are only two variables:
xt

and zt :

Use the stochastic process in the expectational equation to replace

zt+1 = N zt + "t+1
Taking expectations, the "t+1 = 0 disappear
Explaining the solution
Begin with the model
0 = Axt + Bxt 1 + Cyt + Dzt
0 = Et [F xt+1 + Gxt + Hxt 1 + Jyt+1 + Kyt + Lzt+1 + M zt ]
Substitute in
xt
yt

= P xt
= Rxt

+ Qzt ;
+
Szt :
1
1

In the rst equation this gives

0 = A [P xt

+ Qzt ] + Bxt

+ C [Rxt

+ Szt ] + Dzt

Explaining the solution

In the second equation
0

= Et [F [P xt + Qzt+1 ] + G [P xt 1 + Qzt ] + Hxt 1

+J [Rxt + Szt+1 ] + K [Rxt 1 + Szt ] + Lzt+1 + M zt ]

Substitute one more time in the second equation

0

= Et [F [P [P xt 1 + Qzt ] + Q [N zt + "t+1 ]] + G [P xt
+Hxt 1 + J [R [P xt 1 + Qzt ] + S [N zt + "t+1 ]]
+K [Rxt 1 + Szt ] + L [N zt + "t+1 ] + M zt ]

+ Qzt ]

This simplies to (because Et "t+1 = 0) and we remove the expectations

operator
0

= F [P [P xt 1 + Qzt ] + QN zt ] + G [P xt 1 + Qzt ]
+Hxt 1 + J [R [P xt 1 + Qzt ] + SN zt ]
+K [Rxt 1 + Szt ] + LN zt + M zt
11

Explaining the solution

The two equations can be rearranged to give
0 = [AP + B + CR] xt

+ [AQ + CS + D] zt ;

and
0

[F P P + GP + H + JRP + KR] xt 1
+ [F P Q + F QN + GQ + JRQ + JSN + KS + LN + M ] zt :

Since these equations need to hold for all xt

and zt , it must be that

0 = AP + B + CR
0 = AQ + CS + D
0 = F P P + GP + H + JRP + KR
0 = F P Q + F QN + GQ + JRQ + JSN + KS + LN + M
Explaining the solution
The third equation is
0 = F P 2 + GP + JRP + H + KR
and the rst is (if the inverse of C exists)
R=

AP

Combining these one gets

0

= F P 2 + GP
+H

0
0

J C
1

K C

AP + C

AP + C

B P

= FP
JC AP + GP JC 1 AP 2 JC 1 BP
+H KC 1 AP KC 1 B
= F JC 1 A P 2
JC 1 B + KC 1 A G P
KC

B+H

Explaining the solution

Here F is a 1

1 matrix (a scalar)

Finding the solution to the quadratic equation

0

F
KC

JC
1

A P2

JC

B + KC

B+H

can be done using

0 = aP 2 + bP + c
12

G P

The solution to this equation is found from

p
b
b2 4ac
P =
2a
There are usually two dierent solutions to this problem. We use jP j < 1
in order to choose the stable root.
Once P is known, nding R is simple using
R=

AP

Explaining the solution

Finding Q (with P and R already known, from above)
Use the equations
0 = F P Q + F QN + GQ + JRQ + JSN + KS + LN + M
and
0 = AQ + CS + D
S can be written as
S=

AQ

Substitute this into the rst equation

0

AQN

A Q+ F

JC

A QN

JC

A QN

= F P Q + F QN + GQ + JRQ JC
KC 1 AQ KC 1 D + LN + M

JC

DN

Rearrange to get
F P + G + JR
= JC

DN + KC

KC

LN + M

Explaining the solution

This equation
F P + G + JR
= JC

DN + KC

KC

LN + M

A Q+ F

has Q in two dierent places on the left hand side

Q in the nal position in F P + G + JR
Q in the second to the last position in F
13

KC

JC

A Q
A QN

Need to use a theorem from advanced matrix algebra

Theorem 1 Let A, B, and C be matrices whose dimensions are such that the
product ABC exists. Then
vec(ABC) = (C0
where the symbol

A) vec(B)

denotes the Kronecker product.

Explaining the solution

Think of
F P + G + JR
1

= JC

DN + KC

KC

LN + M

A Q+ F

JC

A QN

as
W QI + XQN = Z
(notice that we added I) where
W
X
Z

= F P + G + JR KC
= F JC 1 A
= JC 1 DN + KC 1 D

A
LN + M

Take vec of both sides of the equation, so

vec (W QI) + vec (XQN ) = vec (Z)
This equals
(I 0

W ) vec (Q) + (N 0

X) vec (Q) = vec (Z)

or
(I 0
If (I 0

W + N0

W + N0

X) vec (Q) = vec (Z)

X) is invertible
vec (Q) = (I 0

W + N0

X)

Explaining the solution

What are vec and

(the Kronecker product)

14

vec (Z)

First vec
a11
a21

vec

a12
a22

6
6
6
=6
6
6
4

a13
a23

the columns are made into a vector

a11
a21
a12
a22
a13
a23

7
7
7
7:
7
7
5

Explaining the solution

The Kronecker product is
a11
a21

B =

6
6
6
= 6
6
6
4

a11 b11
a11 b21
a11 b31
a21 b11
a21 b21
a21 b31

3
b12
b22 5 =
b32

b11
4 b21
b31

a12
a22

a11 b12
a11 b22
a11 b32
a21 b12
a21 b22
a21 b32

a12 b11
a12 b21
a12 b31
a22 b11
a22 b21
a22 b31

a12 b12
a12 b22
a12 b32
a22 b12
a22 b22
a22 b32

a11 B
a21 B
3
7
7
7
7:
7
7
5

Calibration
Solution to model is numerical
Need values for parameters
Some we borrow from literature (quarterly)

= :99

= :025
= :36
Need a value for A
Choose A so that H = 1=3
Use stationary state equation for H
H=
1+

A
(1

1
1

(1

A = 1:72 for H = :3335

K = 12:6695 and using the production function, Y = 1:2353
15

a12 B
a22 B

r = 1= = 1:0101
From data for US use

= :95

Matices for Calibrated model

2
0
6 12: 670
A=6
4
0
0
2
1
6 1:2353
C=6
4
1
1

3
0
7
6 12: 353 7
7
7
B=6
5
4 0:36 5
1
3
1
1:5004 0
0:9186
0
0 7
7
0
:64
0 5
0
0
1
2 3
0
6 0 7
7
D=6
4 1 5
0

Matices for Calibrated model

F
G
H
J=

= [0]
= [0]
= [0]

K=

1
0

0 :0348
1

L =
M =
N =

[0]
[0]
[:95]

Numerical solution for model

The quadratic equation gives the solutions
P = 1:0592 and P = 0:9537
The stable value is
P = 0:9537
The value for Q is
Q = 0:1132

16

The matrices R and S are

2
0:204 5
6 0:569 1
R=6
4
0:243
0:795 5

3
7
7
5

3
1: 452 3
6 0:392 7
7
S= 6
4 0:706 7 5
1: 452 3

and

Numerical solution for model

The laws of motion are
e t+1
K
Yet
et
C
et
H

ret

e t + 0:1132et ;
0:9537K
e t + 1:4523et ;
= 0:2045K
e t + 0:3920et ;
= 0:5691K
e t + 0:7067et ;
=
0:2430K
e t + 1:4523et :
=
0:7955K
=

Recall that et follows the process

et = :95et

Two ways of nding the variances of the variables of the model

Simulations
Run lots of simulated economies
Calculate the variances from this "data"
Calculate variances from laws of motion
See book for detains
Need to calibrate var( t ) so that var(Yet ) = 1:76%
gets standard error of

= :0032

Tables of second moments

Standard errors as fraction of output
et
Yet
C
Standard error 5:484 " 4:065 "
As % of output
100%
74:1 2%
Standard errors from the data
et
Yet
C
As % of output 100% 73:30%
17

et
H
1:640 "
29:9 0%
et
H
94:3 2%

ret
3:492 "
63:6 7%
Iet
4 88:6 4%

Iet
11:742 "
214:1%

Does well for consumption

Badly for hours worked and investment
% stationary state values are found in another program
A=[0 -kbar 0 0];
B=[0 (1-delta)*kbar theta -1];
C=[1 -1 -1/(1-hbar) 0
ybar -cbar 0 0
-1 0 1-theta 0
1 0 0 -1];
D=[0 0 1 0];
F=[0];
G=F;
H=F;
J=[0 -1 0 beta*rbar];
K=[0 1 0 0];
L=F;
M=F;
N=[.95];
Cinv=inv(C);
a=F-J*Cinv*A;
b=-(J*Cinv*B-G+K*Cinv*A);
c=-K*Cinv*B+H;
P1=(-b+sqrt(b^2-4*a*c))/(2*a);
P2=(-b-sqrt(b^2-4*a*c))/(2*a);
if abs(P1)<1
P=P1;
else
P=P2;
end
R=-Cinv*(A*P+B);
Q=(J*Cinv*D-L)*N+K*Cinv*D-M;
QD=kron(N,(F-J*Cinv*A))+(J*R+F*P+G-K*Cinv*A);
Q=Q/QD;
S=-Cinv*(A*Q+D);
Hansens model with indivisible labor
Objective: increase variance of hours worked
Make labor indivisible
one works X hours per week or not at all
Add unemployment
since some fraction of the population will not be working

18

Problem of non-convexity of consumption set

In general, maximization is only valid over convex sets
Def of a convex set
straight lines between any two points in set are also in set
Example of a non-convex set
How non-convexity is xed in Hansens model
The problem is the jump in income
between working and not working
Hansen invented an "unemployment insurance"
Lump sum transfers that make income equal for all
solves non-convexity problem
consumption increases smoothly with wage
since all receive same income (based on wages)
solve problem of too much heterogenity
Household problem
maximize
max

1
X

u(ct ;

t)

t=0

subject to

ct + it = wt ht + rt kt
t

= probability in time t of supplying h0 units of labor

19

Expected utility
u(ct ;

t)

u(ct ;

t)

A ln(1 h0 )
+ A(1
h0
A ln(1 h0 )
ln ct + ht
h0

ln ct + ht

ht
) ln(1)
h0

Household problem
Maximization problem becomes
max

1
X

[ln ct + Bht ]

t=0

with
B=

A ln(1 h0 )
h0

subject to constraints
1
t kt ht

= ct + kt+1

(1

)kt

and
ln

t+1

ln

+ "t+1

Household problem
First order conditions
0

1
(1
) t kt ht + B;
ct
1
1
1 1
+ Et
ht
t+1 kt
ct
ct+1

+ (1

With equilibrium condition, these simplify to

1

Ct

Ct
(rt+1 + (1
Ct+1
(1
) Yt
:
BHt

Et

)) ;

Full model

Ct

Ct
(rt+1 + (1
Ct+1
(1
) Yt
BHt

Et

20

))

Ct + Kt+1
rt
Yt

= Yt + (1
)Kt
1 1
=
K
H
t t
t
1
=
t K t Ht

Stationary state
Equations

= r + (1
(1

)Y
BH

r
Y
C

= K
H
1
= K H
= Y
K

solve to give
(1

H=
B 1

)
1

and

(1

K=

1 + (1

Stationary state
Comparing to basic Hansen model
To get same stationary state, need H the same in both cases
Then other variables will be the same
Old stationary state equation
H=
1+

A
(1

1
1

(1

Set the two equal

1+

A
(1

1
1

We replaced B with

(1

i=

(1
A ln(1 h0 )
h0

)
1

A ln(1 h0 )
h0

Need to determine h0 that make the two SS the same

21

;
(1

Stationary state
Solve to get
h0
=
ln(1 h0 )

A
(1

1+

)
A
(1

1
h

(1
1

)
(1

i
)

i =G

G is a constant
To nd h0
= :573, and H = :3335

Get h0 = :583,
Log-linear model

Taking the log-linear approximation of the model gives

0
0
0
0
0
Solution method

et Et C
et+1 + rEt ret+1
C
et + H
e t Yet
C
et + (1
et K K
e t+1
Y Yet C C
)K K
e t (1
et
Yet et
K
)H
Yet

et
K

ret

Use Uhligs method

0 = Axt + Bxt 1 + Cyt + Dzt ;
0 = Et [F xt+1 + Gxt + Hxt 1 + Jyt+1 + Kyt + Lzt+1 + M zt ] ;
zt+1 = N zt + "t+1 , Et ("t+1 ) = 0;
h i
h
i0
h i
e t , yt = Yet ; C
et ; H
e t ; ret , and zt = et
where, xt = K
22

Solve for
xt
yt
2

6
A=6
4

1
6 Y
C=6
4 1
1
J=

+ Qzt
+
Szt
1
1

3
0
K 7
7
0 5
0

1
C
0
0

= P xt
= Rxt

6 K(
B=6
4

1
0

(1

+ 1) 7
7
5
1
2

3
0
6 0 7
7
D=6
4 1 5
0

3
0
0 7
7
0 5
1

)
0

F = [0] ; G = [0] ; H = [0]

K=

L = [0] ; M = [0] ; and N = [ ] :

Results
The linear policy functions are
e t+1 = :9418K
e t + :1552
K

and

et + S
yt = R K

where

3
1: 941 8
6 0:470 3 7
7
S=6
4 1: 471 5 5
1: 941 7
2

3
0:055
6 0:531 6 7
7
R=6
4 0:476 6 5
0:945
2

Results

Using this model, we calculate the variances of the variables

Standard errors
As % of output

Yet
6:431
100%

"

et
C
4:081 "
63:4 6%

et
H
3:444 "
53:5 5%

Increased variance in hours worked

Slight increase in investment
Lower variance in consumption (compared to data)
23

ret
4:514 "
70:1 9%

Iet
15:722 "
244:5%

0.01

technology

0.008
0.006
0.004
0.002
0

10

20

30

40

50
periods

60

70

80

90

100

Impulse response functions

How does the economy respond to a one time shock to technology
"t = 0 except "2 = :01 Recall that
et = et

= :95
1

+ "t

Response of technology (path of et )

Impulse response functions

e 1 = 0 using
Then calculate the time path of capital with K
e t+1 = P K
e t + Qet
K

e t . Use this to nd path of other variables using

get path of K
et + S
yt = R K

Impulse response functions: Basic Hansen model

Impulse response functions: Hansen with indivisible labor
Comparing impulse responses
Both models get same impulse
Put each set of responses on dierent axis
Get
Comparing impulse response
Rotating so that we dont see the time axis

24

-3

20

x 10

15
Y
K
10
C

5
H
0

r
-5

10

20

30

40

50
periods

60

70

80

90

100

Figure 1: Responses of Hansens basic model

-3

20

x 10

15

K
10
C

5
H
0
r
-5

10

20

30

40

50
periods

60

70

80

90

100

Figure 2: Responses for Hansens model with indivisible labor

25

0.02
K
Indivisible labor model

0.015

0.01
0.005
0

100

-0.005

50
-0.01
-0.01
0

-0.005

0.01

0.005

0.015

0.02

Basic model

Figure 3: Responses for both Hansen models

-3

response of model with indivisible laobr

20

x 10

15
H
45
Y
10

K
5
C
0

r
-5
-5

5
10
response of model w ith divisible labor

15

20
-3

x 10

Figure 4: Comparing the response of the two models

26