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Country Risk and the Mundell-Fleming Model Applied to the 1999–2000 Argentine Experience

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  • Javier Ortiz
  • Carlos Rodríguez

Abstract

In this paper we propose a modification of the traditional Mundell-Fleming model. The extended model introduces the implications of including the fiscal deficit and international reserves as determinants of the level of country risk. This slight modification of the traditional paradigm leads to radical changes in the effects that fiscal and monetary policies have in economies with high capital mobility under an extreme version of a fixed exchange rate regime (Currency Board). We use the proposed model to evaluate some of the economic policies implemented between December 1999 and March 2001 by the first economic team under the Presidency of Fernando De la Rúa in Argentina. Additionally, we suggest that some of the main results obtained from the model are applicable to other emerging economies.

Suggested Citation

  • Javier Ortiz & Carlos Rodríguez, 2002. "Country Risk and the Mundell-Fleming Model Applied to the 1999–2000 Argentine Experience," Journal of Applied Economics, Taylor & Francis Journals, vol. 5(2), pages 327-348, November.
    • Handle: RePEc:taf:recsxx:v:5:y:2002:i:2:p:327-348
    DOI: 10.1080/15140326.2002.12040582
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    References listed on IDEAS

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    1. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435, National Bureau of Economic Research, Inc.
    2. Calvo, Guillermo A. & Fernandez, Roque B., 1983. "Competitive banks and the inflation tax," Economics Letters, Elsevier, vol. 12(3-4), pages 313-317.
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    Cited by:

    1. Jonathan Edward Leightner, 2024. "Small-Country Mundell–Fleming (IS/LM/BP) Model Predictions Under Both Fixed and Flexible Exchange Rates: Evidence from Australia and S. Korea," JRFM, MDPI, vol. 17(11), pages 1-20, November.
    2. Layal Mansour, 2014. "The Power of International Reserves: the impossible trinity becomes possible," Working Papers halshs-01054614, HAL.

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    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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