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(b) Consider the following loglinear Cagan money demand function: m, - s, =-n[E,s,+1- s,] where m, = natural log of money stock at date t

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(b) Consider the following loglinear Cagan money demand function: m, - s, =-n[E,s,+1- s,] where m, = natural log of money stock at date t and s = natural log of the spot exchange rate (home currency/foreign currency), and the money demand semi elasticity, n>0. Let the money supply follow a process: M. = Et - 01Et-1 - 02Et-2 where 0

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