relates output to technology and real oil price, through Cobb–Douglas
production function in the long run. γ reflects the inverse of the energy elasticity and one would
expect γ≤0. The Mudell–Fleming–Dornbusch model (Dornbusch, 1976) effectively aggregates
all domestic output as a single composite commodity and assumes that aggregate demand, yd, is
an increasing function of the domestic real exchange rate in Eq.
relates