Money, Banking and Financial Markets: Tutorial 10
University of Adelaide
May 20, 2020
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Consider two identical countries in our standard overlapping generations model. In each
country, the population of every generation is 100, and each young person wants money
balances worth 18 goods. Each member of the initial old starts with $3 of country a
money and £ 3 of country b money, regardless of citizenship. The exchange rate is °xed
at 2: $1 is worth £ 2. There are no foreign currency controls.
Find the value (measured in goods) of a unit of each country±s money in a
stationary equilibrium with unchanging money stocks.
What is the consumption of
each old person?
Suppose each member of the initial old of both countries decides to cut her