RDP 2007-06: The Butterfly Effect of Small Open Economies
Equation (8)
x
t
=
E
t
x
t
+
1
−
1
σ
α
(
r
t
−
E
t
π
h
,
t
+
1
)
+
ϕ
3
E
t
Δ
y
t
+
1
∗
+
(
1
−
ρ
x
)
(
1
−
ϕ
2
)
σ
ν
x
,
t
+
1
−
ρ
x
∗
σ
ϕ
3
ν
x
,
t
∗
−
ϕ
4
(
1
−
ρ
a
)
a
t
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