- #1

- 1

- 0

## Homework Statement

This is a question from an upper level econ course that is giving me quite a bit of trouble. Fluency in linear algebra is assumed for the course. I'm taking a linear algebra course for the first time this semester so I'm still scrambling to learn the basics. If anyone has a good resource to learn linear algebra I would appreciate that as much as any help on this particular problem. So... {subscript} The price of a stock obeys the equations: (1) P{t} = y{t} +β* P{t+1}.

It is "guessed" that equation (1) implies P{t} = Hx{t} + cλ^t. A, G, H are matrices, c and λ are scalars. β is the discount factor.

Solve for H, c, and lambda - are they unique?

## Homework Equations

Equations x{t+1} = Ax{t}, y{t} = Gx{t} are also given.

## The Attempt at a Solution

I found P{t+1} and substituted in the other equations to get: Hx{t} +cλ^t = Gx{t} + β(HAx{t} + cλ^(t+1)) assuming cλ^t = βcλ^(t+1) (therefore beta =1/lambda) H = G(I-βA)^-1

I'm told this is incorrect but it was my best guess so far.. My next guess would be to put P{t+1} into a geometric series which would solve to a form that looks like cλ^t and then putting the rest into a matrix form. But I feel unfortunately out of my element. Any and all help is greatly appreciated, thank you in advance!