Welcome to the repository for the Monetary Economics and Asset Pricing Module II. This repository contains materials related to the coursework and assignments for the module.
- Prof. Maurizio Motolese
- Email: [email protected]
Please complete Homework 2 and submit your answers in a single PDF file via email. The deadline for submission is Friday, November 18, 2022.
Consider a representative agent economy with one-period and two-period bonds being traded. Both bonds are in zero-net-supply. The agent's utility function is a Constant Relative Risk Aversion (CRRA) of the form (1 - \gamma), and the budget constraint is given by:
[C_t + P(1)B(1) + P(2)B(2) \leq \Omega_t + P(1)B(2) + B(1) \quad \text{for } t]
Unlike the case discussed in class, the exogenous endowment shock follows a two-state Markov process:
[\Omega_t = \omega_t \quad \text{with } \omega_t \in {h, l}]
The symmetric transition matrix is given by:
[ \begin{bmatrix} 1 - \phi & \phi \ 1 - \phi & \phi \end{bmatrix} ]
Given the parameters:
(\beta = 0.96), (\gamma = 2), (h = 1.05), (l = 0.97), and (\phi = 0.3).
Tasks:
a.i) Compute the yields and illustrate the slope of the two conditional yield curves (be careful in specifying the probabilities over the two periods). Interpret the results.
b) Visit the following link: ECB Yield Curves
Collect the yields data for all maturities for the AAA rated bonds on July 1st, 2020, and July 1st, 2022.
b.i) Plot the two yield curves. Explain the differences between them and comment on their shape.
For detailed instructions and additional questions, please refer to the complete assignment.
Please organize your submitted materials according to the provided folder structure.
For any questions or clarifications, feel free to reach out to Prof. Maurizio Motolese.
Best regards, Riccardo Dal Cero