G model presented in the lecture notes. Recall the system of equations on which the model is built:

log money market equilibrium mt - pt = -ait; (1)

log nominal money supply mt = dt + kt; (2)

log domestic credit expansion dt - dt-1 = m; (3)

log PPP pt = p*t + log et; (4)

log UIP it = i *

t + Et-1Δet. (5)

Now suppose the government imposes permanent capital controls, we can capture this by replacing (12.5) by:

it = (1 - u)(i *

t + Et-1Δet)

where u is the tax rate on profits.

(a) Following the same steps as in the chapter, derive the timing of the speculative attack T

(b) How does your answer differ from the standard case in the chapter? Explain.