Suppose that in period 5 the interest rate on conventional loans ( intC ) increases from 0.08 to 0.12.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

I[1]<<-0.24*Y[1] IG[1]<<- 0.7 L[1]<<-0.914*Y[1]

Y_D[1]<<- s_W*Y[1]+DP[1]+BP[1]+int_D*(D[1]/(1+g_K)) #based on Eq. (1) CO[1]<<-Y[1]-I[1] #based on Eq. (4)

TP[1]<<-Y[1]-s_W*Y[1]-int_C*(LC[1]/(1+g_K))-int_G*(LG[1]/(1+g_K)) #based on Eq. (5) RP[1]<<-s_F*TP[1] #based on Eq. (6)

DP[1]<<-TP[1]-RP[1] #based on Eq. (7)

r[1]<<-TP[1]/K[1] #based on Eq. (9) beta[1]<<-IG[1]/I[1] #based on Eq. (10) IC[1]<<-I[1]-IG[1] #based on Eq. (12)

KG[1]<<-beta[1]*K[1] #based on Eqs (10), (12), (13), (14) and (15) KC[1]<<-K[1]-KG[1] #based on Eq. (15)

K[1]<<-(I[1]*(1+g_K))/g_K #based on Eqs (13) and (14) LG[1]<<-beta[1]*L[1] #based on Eqs (15), (17) and (18) LC[1]<<-L[1]-LG[1] #based on Eq. (18)

BP[1]<<-int_C*(LC[1]/(1+g_K))+int_G*(LG[1]/(1+g_K))-int_D*(D[1]/(1+g_K))#based on Eq. (19) D_red[1]<<-D[1] #based on Eq. (20)

D[1]<<-L[1] #based on Eq. (20)

CI[1]<<-EMIS_IN[1]/Y[1] #based on Eq. (21)

Y_star[1]<<-Y[1]/u[1] #based on Eq. (24) g_Y[1]<<-g_K #based on Eq. (25) lev[1]<<-L[1]/K[1] #based on Eq. (26)

 

Suppose that in period 5 the interest rate on conventional loans ( intC ) increases from 0.08 to 0.12. Present 4 graphs that show the evolution of the growth rate of output, the leverage of firms, the interest rate on conventional loans and industrial CO2 emissions over the period of your simulation. Repeat the same exercise using a higher a1 equal to 0.7.

 

Discuss the economic mechanisms behind the change in the evolution of the 4 variables caused by the interest rate shock for a1  0.1 and a1  0.7 .

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