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The Mundell-Fleming Model Revisited

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  • Liang-Shing Fan
  • Chuen-Mei Fan

Abstract

With the globalization of the world economy, improved international capital mobility, and the popularity of fixed (pegged) exchange rates among small developing and transition economies, the Mundell-Fleming model has reasserted its importance as an analytical tool. This paper surveys the Mundell-Fleming model in major macroeconomics and international economics textbooks. In the graphical presentations, all textbooks use the traditional IS-LM curves in the (y, i) plane except Mankiw who presents a model in the (y, e) plane with a unique addition of the effect of import restriction policies. It is generally known that fiscal expansions will worsen the trade balance. A synthesized model is presented in which a necessary condition for such effect is derived.

Suggested Citation

  • Liang-Shing Fan & Chuen-Mei Fan, 2002. "The Mundell-Fleming Model Revisited," The American Economist, Sage Publications, vol. 46(1), pages 42-49, March.
    • Handle: RePEc:sae:amerec:v:46:y:2002:i:1:p:42-49
    DOI: 10.1177/056943450204600106
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