RDP 2007-01: A Structural Model of Australia as a Small Open Economy Appendix A: The Linearised Model

The consumption Euler Equation

Import demand

Domestic consumption demand

The relative price of imported goods for the domestic consumer

Export demand

The relative price of goods produced domestically sold to the world

Domestic production (resource constraint)

Inflation of domestically produced goods

Inflation of imported goods

CPI inflation

Uncovered interest rate parity condition

Flow budget constraint

Labour supply decision

Real domestic marginal cost (the real wage divided by marginal productivity of labour)

or

Real marginal cost of imported goods

or

The Taylor rule describing monetary policy