(From Schmitt-Grohe, Uribe and Woodford 2022) Consider a two-period, small open economy populated by a large number of households with preferences captured by the following lifetime utility function ln(C T 1 C N 1 ) + ln(C T 2 C N 2 ), where C T t and C N t , for t = 1, 2, denote consumption of tradable and nontradable goods in period t, respectively. Households are endowed with QT 1 = 1 and QT 2 = 2 units of tradables and QN 1 = QN 2 = 1 unit of nontradables in periods 1 and 2. Households start period 1 with no assets or debts. The world interest rate is zero