Representative households choose consumption

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Consider an intertemporal model in which representative households choose consumption, c(subscript t+1) and two types of bonds b(subscript 1,t+1) and b(subscript 2,t+1) to maximize their utility over time, prices are perfectly flexible, and all markets are in equilibrium. Write out the households’ optimization problem, the Lagrangian and the first order conditions. Use the first order conditions to show that there’s no arbitrage in this model equilibrium.

Reference no: EM13887845

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