Lecture 5 - Isabelle MEJEAN's home page

Betts & Devereux (1996)
Campa & Goldberg (2006)
Households’ behaviour
Households solve the following 2-step program:
{ (
max C,h,M logC +
γ ( M
) 1−ɛ
)
1−ɛ P + ηlog(1 − h)
s.t. PC + M = Wh + π + M 0 + TR
⎧
⎨
⎩
max C(i)
[ ∫ 1
0
) σ
σ−1 σ−1
c(i) σ di
s.t. PC = ∫ 1
0 v(i)c(i)di
where v(i) is the price of variety i, either p(i) if i ∈ [0; n] or p ∗ (i) if
i ∈ [n; n + (1 − n)s] or eq(i) ∗ if i ∈ [n + (1 − n)s; 1].
Isabelle Méjean Lecture 5