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Effect of higher future trade balance deficit

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Reference no: EM132812803

Consider an infinite-horizon economy that has at the beginning of period 1 a net foreign asset position of B0∗. Derive an intertemporal relation that relates B0∗ to the present discounted value of the country's all future trade balances. What is the effect of higher future trade balance deficit on the current exchange rate? Elaborate on your results.

Reference no: EM132812803

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