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266CHAPTER 9. THE NEW INTERNATIONAL MACROECONOMICSwhere 0 < β < 1 is the subjective discount factor, C t+j is the CESindex given in (9.1) and M t /P t are real balances. The costs of forgoneleisure associated with work are represented by the term (−ρ/2)y 2 t (z).Let p t (z) be the domestic price of good z, S t be the nominal exchangerate, and p ∗ t (z) be the foreign currency price of good z. Akeyassumption is that prices are set in the producer’s currency. It followsthat the law of one price holds for every good 0
9.1. THE REDUX MODEL 267c t (z ∗ ) ="St p ∗ t (z∗ )P t# −θC t . (9.6)Analogously, foreign household lifetime utility is⎡Ã∞XM∗Ut ∗ = β j ⎣ln Ct+j ∗ t+j+j=0γ1 − ²with consumption and price indicesP ∗t+j! 1−²− ρ 2 y∗2t+j(z ∗ )⎤⎦ , (9.7)⇐(150)⇐(151)C ∗ t =P ∗t =·Z n0⎡Z n⎣0c ∗ θ−1t (z)θ dz +Z 1nÃ ! 1−θ Z pt (z)1dz +S t n¸ θc ∗ t (z∗ ) θ−1 θ−1θ dz∗ , (9.8)⎤[p ∗ t (z∗ )] 1−θ dz ∗ ⎦11−θ, (9.9)and individual demand for z and z ∗ goods" # −θc ∗ t (z) = pt (z)S t Pt∗ Ct ∗ ,"pc ∗ ∗t (z∗ ) = t (z ∗ # −θ)Ct ∗ .Every good is equally important in home and foreign householdsutility. It follows that the elasticity of demand 1/θ, in all goods marketswhether at home or abroad, is identical. Every producer has theidentical technology in production. In equilibrium, all domestic producersbehave identically to each other and all foreign producers behaveidentically to each other in the sense that they produce the same levelof output and charge the same price. Thus it will be the case that forany two domestic producers 0
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CONTENTSvii11 Balance of Payments C
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2 CHAPTER 1. SOME INSTITUTIONAL BAC
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10 CHAPTER 1. SOME INSTITUTIONAL BA
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80 CHAPTER 3. THE MONETARY MODEL3.1
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82 CHAPTER 3. THE MONETARY MODEL604
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84 CHAPTER 3. THE MONETARY MODEL0 <
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86 CHAPTER 3. THE MONETARY MODELexc
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90 CHAPTER 3. THE MONETARY MODELThe
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92 CHAPTER 3. THE MONETARY MODEL=
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94 CHAPTER 3. THE MONETARY MODELSub
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96 CHAPTER 3. THE MONETARY MODELTab
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98 CHAPTER 3. THE MONETARY MODELthe
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102 CHAPTER 3. THE MONETARY MODELMo
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104 CHAPTER 3. THE MONETARY MODELwh
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106 CHAPTER 4. THE LUCAS MODEL(76)
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108 CHAPTER 4. THE LUCAS MODELsubje
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110 CHAPTER 4. THE LUCAS MODELeach
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112 CHAPTER 4. THE LUCAS MODELcompl
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114 CHAPTER 4. THE LUCAS MODELdenot
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116 CHAPTER 4. THE LUCAS MODELc yt
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118 CHAPTER 4. THE LUCAS MODELIn eq
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120 CHAPTER 4. THE LUCAS MODELn t =
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122 CHAPTER 4. THE LUCAS MODELRearr
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124 CHAPTER 4. THE LUCAS MODELTable
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126 CHAPTER 4. THE LUCAS MODEL4.5 C
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128 CHAPTER 4. THE LUCAS MODELTable
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130 CHAPTER 4. THE LUCAS MODELdisco
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132 CHAPTER 4. THE LUCAS MODEL1.02A
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134 CHAPTER 4. THE LUCAS MODELAppen
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136 CHAPTER 4. THE LUCAS MODELProbl
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138 CHAPTER 5. INTERNATIONAL REAL B
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162CHAPTER 6. FOREIGN EXCHANGE MARK
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208 CHAPTER 7. THE REAL EXCHANGE RA
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316 CHAPTER 10. TARGET-ZONE MODELST
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318 CHAPTER 10. TARGET-ZONE MODELSa
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320 CHAPTER 10. TARGET-ZONE MODELSM
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322 CHAPTER 10. TARGET-ZONE MODELSt
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324 CHAPTER 10. TARGET-ZONE MODELS
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326 CHAPTER 10. TARGET-ZONE MODELS
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328 CHAPTER 11. BALANCE OF PAYMENTS
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358 AUTHOR INDEXFama, E.F., 161, 16
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Subject IndexAAbsorption, 16, 230AI
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362 SUBJECT INDEXEfficient capital
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364 SUBJECT INDEXMethod of undeterm
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366 SUBJECT INDEXRisk neutrality, 9
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368 SUBJECT INDEXImpulse response a
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