an (i - 2) X (i - 2) identity matrix starting in row 2, column 1. If i < n, then there is an (n - i) X (n - i) identity matrix starting in row i, column i. All other elements are 0. Here is an illustration of I for a six-country case:   1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 -1 0 0 0 0 0 0 0 0 1 0 -1 0 0 0 0 0 0 0 0 0 1 -1 0 0 0 0 0 0 0 0 0 0 -1 1 0 0 0 0 0 0 0 0 0 -1 0 1 Also notice that since t( = I( rv it follows that S; = E(rr') = ElJr^^FJ = iJ^J-[-We will also find it convenient to define a (In) X (2k - 1) matrix, H, that transforms the (In - l)-vector of portfolio allocations of risky assets-that is, equities and currencies-in country i, denoted wt> into a 2"-vector of demands for equities and lending (equivalently, holdings of bills) in each of the n countries, which we will denote d. Let 1 * be an K-vector with a 1 in the mth position and O's elsewhere (1^"; is a 2"-vector with a 1 in the n + zth position which corresponds to the demand for lending in country i). When H is defined as below, we will have: d! = l2n". + Hw! (6.19) In defining H again we consider four submatrices. The n X n upper-left matrix is the identity. The "x(k-1) upper-right matrix is identically 0. The n X n lower-left matrix is -1 times the identity. Only the lower-right submatrix changes with i. The " x (k - 1) lower-right submatrix has a row of -1 's in the zth row. For i > 1 there is a (i - 1) X (i - 1) identity matrix starting in row 1, column 1. For i < n there is an (k - i) X (n - 1) identity matrix starting in row i + 1, column i. All other elements are 0. Here is an illustration of HA for a six-country case: 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0