RDP 9101: The Effect of Steady Inflation on Interest Rates and the Real Exchange Rate in a World with Free Capital Flows
Equation (A7)
<
r
>
=
l
T
∫
0
T
{
r
I
t+r
II
(
T
−
t
)
}
ε
e
−
ε
t
dt+r
I
e
−
ε
T
=
r
II
+
(
r
I
−
r
II
)
l
−
e
−
ε
T
ε
T
≈
r
I
+
(
r
II
−
r
I
)
ε
T
2
when
εT
is
small
.
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