How does the REH work in our simple model? First, equilibrium outcomes are calculated. Hence, (3.3) is

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How does the REH work in our simple model? First, equilibrium outcomes are calculated. Hence, (3.3) is substituted into (3.1) and (3.2), which can then be solved for Pt and Qt in terms of the parameters and the expected price 11:

ao - bo - - Ur ai Qt = + biPte: + Ut .

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