Explain how lower persistence of productivity shock affects

Question

Macroeconomics Problem Set - Short assignment on business cycle

In this exercise you are asked to explore the role of various parameters for the business cycle properties of the neoclassical growth model studied in class. Use dynare to solve the general model under these alternative parameterization.

1. Persistence 1: Assume ρ_z = 0:01: Explain how lower persistence of productivity shock affects the impulse responses and the second moments and persistence of macro variables.

2. Persistence 2: Assume ρ_z = 0:99: Explain how higher persistence of productivity shock affects the impulse responses and the second moments and persistence of macro variables.

3. Variance: Assume ρ²_z = 0:0025: Explain how higher volatility of productivity shock affects the impulse responses and the second moments and persistence of macro variables.