Technical Note on 'The Real Exchange Rate in Sticky Price Models: Does Investment Matter?'

Abstract

This technical note is developed as a mathematical companion to the paper ‘The Real Exchange Rate in Sticky Price Models: Does Investment Matter?’ (GMPI working paper no.17). It contains three basic calculations. First, we derive the equilibrium conditions of the model. Second, we compute the zero-inflation, zero-trade balance (deterministic) steady state. Third, we describe the log-linearization of the equilibrium conditions around the deterministic steady state. Simultaneously, we explain the system of equations that constitutes the basis for the paper to broaden its scope. Commentary is provided whenever necessary to complement the model description and to place into context the assumptions embedded in our DSGE framework.