RDP 9807: Inflation Targeting in a Small Open Economy Appendix B: State-space Forms

B.1 State-space Form for Model A

The matrices in the state-space form of Model A are as follows:

where A₁ = (1+β₁)e₁ + α e₂ + β₂e₄ − β₂(e₇ − e₆) − β₁(e₈ − e₇), and e_j = 0,…,n, denotes a 1×n row vector, where for j = 0 all elements are equal to zero, and for j ≠ 0 the j^th element is equal to unity with all other elements equal to zero.

B.2 State-space Form for Model B

B.3 State-space Form for Model C