Dynare forums

hi
Dear professor jpfeifer:
we want to investigate the effect of the demand side policies on food consumption.
The small open economy is populated by infinitely-lived households. They consume (C) and supply labor (L) and real cash holdings (m). The consumption bundle consists of domestic (D) and an imported good (I). Each kind of good consists of two varieties: food (F) and non-food (M).
so we have:

Households maximize the expected present discounted value of utility subject to the budget constraint of
the household:


my question is:
Can we investigate the effect of the demand side policies on food consumption with this model through the consumption bundles or we must change the model?
[Must we change C in the households utility function to CF (food consumption) and CM (Non_food Consumption) ?]

In general, the answer is yes. In principle, it does not matter whether you put the aggregation technique into the household's preferences or whether you introduce a "bundler" outside of the household that produces the final consumption good by bundling together the individual components using the CES technology you posted. Both structures are isomorphic. Putting it directly into utility function makes the math a bit easier as you have a more parsimonious structure, but most papers seem to prefer the bundler story.