Exchange rate dynamics, asset market structure and the role of the ...

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Home and Foreign input demand functions ^c H = (v 1) ^T t + ^C t (A25) ^c H = (v 1) ^T t + c RS t + ^C t (A26) ^c F = v ^T t + ^C t (A27) ^c F = v ^T t + c RS t + ^C t (A28) ^x H;t = (' 1) ^T t + ^x t (A29) ^x F;t = ' ^T t + ^x t (A30) ^x H ;t = (' 1) ^T t + ^x t (A31) Relative price of investment based on CES price indexes ^x F ;t = ' ^Tt + ^x t (A32) dP x t P t = (v ') ^T t (A33) dP x t P t = (v ' ) ^T t (A34) B Steady-state ratios x H y H = x k 1 k i + y = (1 ) (B1) 34
x H y H = ' x y H (B2) x H y H = ' x y H (B3) y H c H = 1 v (1 x H y H ) 1 (B4) c H y H = 1 c H y H x H y H x H y H (B5) x F y F 1 i + = (1 ) (B6) x F y = (1 ' ) x F y F (B7) y F c F = x F y = (1 ') x F y F 1 1 (1 v ) x 1 t y (B8) (B9) c F y = 1 c F y x F y x F y (B10) C The link between relative output and the terms of trade To derive expression (35), I take expression (A21) and (A22), setting the share of investment goods in home-country to zero and substituting expressions (A25) -(A28), for convenience I also assume ‘symmetric home bias’v = 1 v : ^y H;t = v(1 v) ^T t + v ^C t + v(1 v) ^T t + (1 v) ^C t 35
Page 1 and 2: CENTRE FOR DYNAMIC MACROECONOMIC AN
Page 3 and 4: sume …nancial autarky. They show
Page 5 and 6: goods producing sector. The interme
Page 7 and 8: the same, such that C t = ~ C t (9)
Page 9 and 10: maximization problem of the represe
Page 11 and 12: shocks in C: shocks to the home int
Page 13 and 14: our shock processes, and matrix th
Page 15 and 16: increase is associated with a large
Page 17 and 18: since a depreciation reduces the va
Page 19 and 20: 5.1 The role of consumption home-bi
Page 21 and 22: This shows that the log-deviation o
Page 23 and 24: : [^y t ^y t ] = (1 x y )(1 2v(1
Page 25 and 26: model the phenomenon of negative in
Page 27 and 28: model displays high persistence, th
Page 29 and 30: more robust to changes in key param
Page 31 and 32: Lucrezia Reichlin and Kenneth West
Page 33: Optimal capital accumulation equati
Page 37 and 38: D Data sources 1. US quarterly data
Page 39 and 40: 4 3.5 3 2.5 σ T 2 1.5 1 ρ T corr(
Page 41 and 42: 1.6 1.4 1.2 σ T 1 corr(RS, c-c*) 0
Page 43 and 44: 4 3.5 3 2.5 σ T 2 1.5 corr(RS,c-c*
Page 45 and 46: 4 3.5 3 2.5 2 σ T 1.5 1 corr(RS,c-
Page 47 and 48: 4 3.5 3 2.5 σ T 2 1.5 1 corr(rs, c
Page 49 and 50: www.st-and.ac.uk/cdma ABOUT THE CDM
Page 51: CDMA07/18 CDMA07/19 CDMA07/20 The M

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