The autumn is coming to the Czech Republic. Today we probably had one of the very last warm days of this year. I went out and made some photos. I wanted to prove you that autumn is not depressive part of the year. In the contrary, it is very colourful and beautiful. If you don’t believe me, look at the photos.
In previous articles, we went through a simple DSGE model. We computed first order conditions and steady-state equations and we ran a simulation in Dynare. Maybe some of you were confused by one thing: there was no firm in the model. We had only a representative household, we even had a production function, but this function was a part of a household budget constraint. Isn’t this strange? Where is the firm? And where is a profit maximization task? We will discuss it in this article. We will define a new DSGE model which contains both firm and household. Then we will solve it and we will run a new simulation in Dynare.
There are several ways how to define the environment of the model. This is the “standard” way which you may know from the basic economics courses: There are households and firms in the model. The households provide labour and savings to the firms and firms provide consumer goods to the households. Transactions are made on labour, capital and consumption goods markets. This is the case which we are analyzing in this article.
We could use a different definition. The household can perform the functions of the firm: it can employ adult members of the family as workers and consume the produced goods. The savings of the household are used as capital.
We could also assume that the economy contains an element which is called a benevolent social planner. The social planner has no connection to socialism, communism or any other totalitarian regime. In DSGE models, the social planner is only a formal assumption which makes the solution of the model easier. The solution of the model is exactly the same for both versions. The social planner dictates the choices of consumption to maximize the household utility. This is why we call the planner benevolent. It’s only desire is the household’s welfare.
Students, who study some subject about statistics, have often problems with choosing a proper statistical test for their task. To select a proper test, you need to consider following facts:
- the hypothesis which you need to test,
- the structure of your data (do you have one sample from one population, two samples from two populations, or even more?),
- your knowledge about population(s) (like population distribution type, variance etc.).
As I promised in my article about EPM 2017, I am writing a post about our city tour. I am adding some photographs of the city.
Our tour started near main train station. You can see a statue of famous Croatian king Tomislav on the photo (by the way, Tomislav was also a name of our city guide). It is not a coincidence that he rides on the horse – you can find plenty of statues of other famous historical characters of Croatia. And a lot of them ride on horses. In the background, you can see Art Pavilion (Umjetnički paviljon).