RDP 2010-02: Learning in an Estimated Small Open Economy Model Appendix A: Log Linear Equations

Real exchange rate

Export demand

Domestic consumption demand

Import demand

Real marginal cost of imported goods

Real marginal cost of domestic goods

The relative price of goods produced domestically sold to the world

Domestic production

CPI Inflation

The relative price of imported goods for the domestic consumer

Flow budget constraint

Monetary policy


Inflation of domestically produced goods

Inflation of imported produced goods

Uncovered interest rate parity

Shock processes

The model can be expressed in the following form