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So that is a very simple thing.
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Suppose after finding the equilibrium I added a third
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asset that paid 1 dollar in period 2 next year.
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Now, it would have a price of--added a third asset gamma,
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so pi_gamma--we'd have to solve for the
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equilibrium pi_gamma, and is there some word that I
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could use?
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So gamma is an asset that pays a dollar in period 2.
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It's like a bond promising a dollar in period two.
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The price of the bond would then have to be what?
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1 over (1 i) where i is called the nominal interest rate,
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so we've got inflation is occurring in the model.