366
MACROECONOMICS
Define the real exchange rate as
q
t
=
E
t
P
t
*
/
P
t
and let the ratio of the foreign
assets to GNP in real terms be
f
t
=
q
t
F
t
-
1
/
Y
n
t
. Then,
P
(
Y
n
-
C
-
I
-
G
)
________________
PY
n
+
(
r
+
)
f
t
=
P
t
+
1
____
P
t
Y
n
t
+
1
____
Y
n
t
f
t
+
1
-
f
t
Now, [
P
(
Y
n
-
C
-
I
-
G
)/
PY
n
] is the trade balance to nominal GNP ratio.
Hence,
tb
+
(1
+
r
+
)
f
t
=
P
t
+
1
____
P
t
Y
n
t
+
1
____
Y
n
t
f
t
+
1
Now, the inflation rate domestically is
=
[(
P
t
+
1
-
P
t
)/
P
t
]
=
(
P
t
+
1
/P
t
)
- ...
Get Macroeconomics, 2nd Edition by Pearson now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
