There are three assets in the portfolio balance model, money, domestic bonds and
foreign bonds. The domestic country, as usual in the kind of analysis, is assumed
to be small incapable of influencing the foreign or world economic and financial
environments. While domestic investors may hold both domestic and foreign
bonds, it is further assumed that foreign residents do not hold domestic bonds. To-
tal domestic bonds are partitioned into the bond holdings by private investors and
the bond holdings by the authorities in the domestic country