Problem set 5 Buan 6340 Linear algebra 1. Real business cycles: Consider the macroeconomic model for real business cycles taken from Dejong and Dave (2011) Chapter 3. In your last problem set you derived the nonlinear system: 1- 05 = (1-0) yt Et-1 Bu(C,It) "(4-1, 4-1) CE (# + 1-6 = 4-11 1 = meth Ut = C + it ke = i-1+(1-8)kt-1 u(c, 1 ) = 1- w In & = (1 -p) In + pln-1+ et Your job is to log-linearize the above system around the steady state using first-order taylor series approxima- tions to find a model in the form: Art = BIt-1 + Cet