Consider a home economy with utility u = log c1 + B log C2 and flow...

 

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Consider a home economy with utility u = log c1 + B log C2 and flow budget constraints in the two periods: C1 +6< Yı, C2 < Y2 + (1+ r)b, where u(c) endowment stream, and b is savings, which pays interest r. The foreign economy is symmetric, and we denote all its variables with *. In particular, foreign is only different in its endowment, (y, y). Assume that yı stable and foreign economy is growing. log c is the utility function (CRRA with o = 1), (y1, Y2) is an exogenous = Y2 and y < y5, so that home economy is Consider a home economy with utility u = log c1 + B log C2 and flow budget constraints in the two periods: C1 +6< Yı, C2 < Y2 + (1+ r)b, where u(c) endowment stream, and b is savings, which pays interest r. The foreign economy is symmetric, and we denote all its variables with *. In particular, foreign is only different in its endowment, (y, y). Assume that yı stable and foreign economy is growing. log c is the utility function (CRRA with o = 1), (y1, Y2) is an exogenous = Y2 and y < y5, so that home economy is

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