Thus:  (  nx = −ηe − α d − d ∗  )  where η is the elasticity of net exports with respect to the exchange rate, and α is the elasticity of net exports to the differential between home and foreign absorption. The real exchange rate is expressed in percent deviation from the steady state.
The exchange rate is determined according to an interest rate parity condition which implies that the exchange rate appreciates when domestic interest rates are higher  - 14 than foreign interest rates, with elasticities ( φc and φu ) that can differ depending on whether interest rate movements are driven by conventional or unconventional policy:  (  )  (  )  e = φc rc − rc ∗ + φu ru − ru ∗ .