As can be observed in the graphs below, the capital output (u) increases when the interest rate on bonds increases from 0.07 to 0.1. When the interest increases, there is a substantial increase in the steady state value of household output, vh, as households invest in more bonds and yield higher returns from these bonds:
When alpha (α) increases from 0.3 to 0.7, it has a negative effect on the economy, particularly in relation to household output which drops dramatically. Capital output increases initially in this shocked state but is less affected in the long run as it tends towards it’s original value.
1 comment:
Ah, nice one. S
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