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268CHAPTER 9. THE NEW INTERNATIONAL MACROECONOMICSIt follows that the home and foreign price levels, (9.4) and (9.9) simplifytoP t = [np t (z) 1−θ +(1− n)(S t p ∗ t (z∗ )) 1−θ ] 11−θ , (9.10)Pt ∗ = [n(p t (z)/S t ) 1−θ +(1− n)p ∗ t (z∗ ) 1−θ ] 11−θ , (9.11)and that PPP holds for the correct CES price indexP t = S t P ∗t . (9.12)Notice that PPP will hold for GDP deßators only if n =1/2.Asset Markets. The world capital market is fully integrated. There isan internationally traded one-period real discount bond which is denominatedintermsofthecompositeconsumption good C t . r t is thereal interest rate paid by the bond between t and t + 1. The bond isavailable in zero net supply so that bonds held by foreigners are issuedby home residents. The gross nominal interest rate is given by theFisher equation1+i t = P t+1(1 + r t ), (9.13)P tand is related to the foreign nominal interest rate by uncovered interestparity1+i t = S t+1(1 + i ∗ t ). (9.14)S tLet B t be the stock of bonds held by the domestic agent and Bt∗ bethe stock of bonds held by the foreign agent. By the zero-net supplyconstraint 0 = nB t +(1− n)Bt ∗ , it follows thatBt ∗ = −n1 − n B t. (9.15)(153)⇒The Government. For 0
9.1. THE REDUX MODEL 269Table 9.1: Notation for the Redux modeln Fraction of world population in home countryu Index across all individuals of the world 0
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To Shirley, Laurie, and Leslii
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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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24 CHAPTER 2. SOME USEFUL TIME-SERI
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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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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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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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