Exercise 9.8
Foreign Inflation
Problem
Assume that the foreign price of tradable goods, \(P^{T*}_t\), grows at the deterministic gross rate, \(\pi^*\), that is, \(P^{T*}_{t+1}/P^{T*}_t=\pi^*\). How do the equilibrium conditions (9.9)-(9.19) change with the introduction of this assumption?
Answer
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