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Consider the asset markets with sticky prices, where the following conditions hold: i = i* + E- [Interest Parity Condition] m - p= oy li
Consider the asset markets with sticky prices, where the following conditions hold: i = i* + E- [Interest Parity Condition] m - p= oy li [Money Market Equilibrium Condition] - e where i, i*, e, e, m, p, and y denote domestic interest rate, foreign interest rate, the log of exchange rate, the log of expected exchange rate, the log of money supply, the log of price level, and the log of output, respectively. The parameters and I are positive constants. (1) Take i*, e, m, p, and y exogenously given. Find the exchange rate and the domestic interest rate in the equilibrium. (2) Evaluate the impact of a rise in money supply on and i. Consider the asset markets with sticky prices, where the following conditions hold: i = i* + E- [Interest Parity Condition] m - p= oy li [Money Market Equilibrium Condition] - e where i, i*, e, e, m, p, and y denote domestic interest rate, foreign interest rate, the log of exchange rate, the log of expected exchange rate, the log of money supply, the log of price level, and the log of output, respectively. The parameters and I are positive constants. (1) Take i*, e, m, p, and y exogenously given. Find the exchange rate and the domestic interest rate in the equilibrium. (2) Evaluate the impact of a rise in money supply on and
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