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The Mundell-Fleming Model

In: The Economics of Foreign Exchange and Global Finance

Author

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  • Peijie Wang

    (University of Hull, Business School)

Abstract

The Mundell-Fleming model works with the assumption that prices are fixed. This means that the aggregate supply curve is flat (horizontal in the extreme) and income is determined by the aggregate demand only. Therefore, analysis in this chapter is in the IS-LM framework, extended to incorporate the external sector – the balance of payments, to become IS–LM–BP analysis, as studied in Section 5.2 of the previous chapter. The model has been originated in a series of papers and collections by Mundell (1960, 1961, 1962, 1963 and 1964) and Fleming (1962 and 1971). The background, history and development of the Mundell-Fleming model can be found in Mundell (2001) and Obstfeld (2001), which the interested reader may refer to.

Suggested Citation

  • Peijie Wang, 2009. "The Mundell-Fleming Model," Springer Books, in: The Economics of Foreign Exchange and Global Finance, chapter 7, pages 1-28, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-00100-0_7
    DOI: 10.1007/978-3-642-00100-0_7
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