Alvarez, Fernando (contributor); Atkeson, Andrew (contributor) - 2007
exchange rate fact implies that changes in a domestic interest rate relative to a foreign interest rate
lead to one … markets imply that
m
∗
t+1
= m
t+1
e
t+1
e
t
,(9)
where e
t
is the nominal exchange rate. To derive this equation in a … walks,
the expected change in the exchange rate, E
t
[loge
t+1
−loge
t
], must be approximately a constant.
2
Hence, (10 …