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Unformatted text preview: in the second period, i.e. cash-in-advance constraint has to hold. Write the cash-in-advance constraint for the consumer. Using the cash-in-advance constraint and lifetime budget constraint, derive the expression for the nominal money demand of the young agent at time t and his consumption at time t + 1 . c Now consider in addition , that the consumer likes to consume C * t +1 foreign goods in the second period. As a result, he needs to buy foreign currency in the rst period and carry into the second period. Let M * t be the nominal foreign currency holdings of the consumer (in units of foreign currency), P * t be the foreign price level, and e t be the exchange rate. Write down the rst period and second period budget constraint, and cash-in-advance constraint of the consumer. 1...
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This note was uploaded on 02/04/2011 for the course ECON 320L taught by Professor Kuruscu during the Fall '08 term at University of Texas at Austin.
- Fall '08