CHEAT SHEET
NOTATION and IDENTITIES. (Other equations below)
| Symbol |
Meaning |
Identities or Definitions |
| Y | GNP or National Income or GDP | Y = C + I + G + EX - IM |
| C | Consumption | |
| I | Investment | |
| G | Government Purchases | |
| EX | Exports | |
| IM | Imports | |
| CA | Current Account | CA = EX - IM |
| Sp | Private saving | |
| Sg | Government saving | |
| S | National saving | S = Y - C - G, S = Sp + Sg |
| E, E$/€ | Spot exchange rate: (Dollars per one Euro) | |
| F, F$/€ | Forward exchange rate: (Dollars per one Euro) | |
| R$ | Expected rate of return on dollar asset measured in dollars | |
| R€ | Expected rate of return on euro assets measured in euros | |
| R($) | Expected rate of return on foreign assets measured in dollars | R($) = R€ + (Ee$/€ - E$/€)/E$/€ |
| R | Domestic rate of return in domestic currency, interest rate | |
| R* | Foreign rate of return in foreign currency | |
| P (P*) | Domestic (foreign) economy price level | |
| Md | Money demand | Md = P * L(R,Y) |
| π (π*) | Domestic (foreign) inflation rate | πt = (Pt - Pt-1)/Pt-1 |
| q , q$/€ | Real exchange rate: (dollars versus euros) | q$/€ = E$/€PE / PUS, q = EP*/P |
| r (r*) | Real domestic (foreign) interest rate | |
| ŷ | Growth rate of y | ŷ t= (yt - yt-1)/yt-1 |
| xe | Expected value of x | |
Money market equilibrium: Ms/P = L(R,Y)
Uncovered interest parity: R$ = R€ + (Ee$/€ - E$/€)/E$/€, or R = R* + (Ee - E)/E
Covered interest parity: R$ = R€ + (F$/€ - E$/€)/E$/€, or R = R* + (F - E)/E
Law of one price (LOP): PiUS = E$/€ × PiE, or Pi = E × P*i
(Absolute) Purchasing power parity (PPP): PUS = E$/€ × PE, or P = E × P*
Relative PPP: πUS,t = (E$/€, t - E$/€, t-1)/E$/€, t-1 + πE, t, or π = Ê + π*
Fisher equation: R = r + πe
Real interest parity: re$ = re€ + (qe$/€ - q$/€)/q$/€, or re = re* + (qe - q)/q