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A Note on the Mundell-Fleming Model: Policy Implications on Factor Migration

Author

Listed:
  • Hannu Laurila

    (School of Management, University of Tampere)

Abstract

The policy implications of the seminal Mundell-Fleming model are reviewed in the classical long-term regime of the full Neo-Keynesian macroeconomic model. It is shown that, besides the temporary capital flows described by the Mundell-Fleming model, both fiscal and monetary policy may have longer lasting effects on factor migration. A positive policy shock motivates emigration of labour and inflow of capital, and vice versa. Under imperfect mobility of labour, the effect on labour migration depends on whether the domestic transaction costs of revising the contracts are higher or lower than the costs of international mobility.

Suggested Citation

  • Hannu Laurila, 2007. "A Note on the Mundell-Fleming Model: Policy Implications on Factor Migration," Working Papers 0757, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0757
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    File URL: http://urn.fi/urn:isbn:978-951-44-70-42-4
    File Function: First version, 2007
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    More about this item

    Keywords

    exchange rates; fiscal and monetary policy;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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