The Mundell-Flemming Model: A Quarter Century Later
The Mundell-Fleming model of international macroeconomics originated in the writings of Robert A. Mundell and J. Marcus Fleming in the early 1960s. The key contribution of the model has been a systematic analysis of the role played by international capital mobility in determining the effectiveness of macroeconomic policies under alternative exchange rate regimes. During the ensuing quarter century, the model was extended in various directions and is still the main "work horse" of traditional open-economy macroeconomics. This paper develops an exposition that integrates the various facets of the model and incorporates its extensions into a unified analytical framework. Attention is given to the distinction between short-run and long-run effects of policies, the implication of debt and tax financing of government expenditures, the role of the exchange rate regime in this regard, and debt revaluation and trade-balance revaluation effects associated with exchange rate changes. The resulting integration clarifies the key economic mechanisms operating in the Mundell-Fleming model and helps to identify its limitations. Among these is the neglect of intertemporal budget constraints and of the consequences of forward- looking behavior consistent with this constraint. The formulation in the paper casts the model in a manner that facilitates comparisons with more modern approaches. In so doing, the exposition provides a bridge between the traditional and the more modern approaches to international macroeconomics.
|Date of creation:||Jul 1987|
|Publication status:||published as "The Mundell-Fleming Model A Quarter Century Later: A Unified Exposition" From International Monetary Fund Staff Papers, Vol. 34, No. 4, pp. 567-620,(December 1987).|
|Note:||EFG ITI IFM|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William H. Branson, 1970. "Monetary Policy and the New View of International Capital Movements," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(2), pages 235-270.
- Obstfeld, Maurice & Stockman, Alan C., 1985.
Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 18, pages 917-977
- Maurice Obstfeld & Alan C. Stockman, 1983. "Exchange-Rate Dynamics," NBER Working Papers 1230, National Bureau of Economic Research, Inc.
- Robert A. Mundell, 1960. "The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 74(2), pages 227-257.
- Richard C. Marston, 1983. "Stabilization Policies in Open Economies," NBER Working Papers 1117, National Bureau of Economic Research, Inc.
- Rodriguez, Carlos Alfredo, 1979. "Short- and Long-Run Effects of Monetary and Fiscal Policies under Flexible Exchange Rates and Perfect Capital Mobility," American Economic Review, American Economic Association, vol. 69(1), pages 176-182, March.
- Boyer, Russell S, 1977. "Devaluation and Portfolio Balance," American Economic Review, American Economic Association, vol. 67(2), pages 54-63, March.
- Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-594, June.
- Floyd, John E, 1969. "International Capital Movements and Monetary Equilibrium," American Economic Review, American Economic Association, vol. 59(4), pages 472-492, Part I Se.
- Kenen, Peter B., 1985. "Macroeconomic theory and policy: How the closed economy was opened," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 13, pages 625-677 Elsevier.
- Kouri, Pentti J K, 1976. " The Exchange Rate and the Balance of Payments in the Short Run and in the Long Run: A Monetary Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 280-304.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
- Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747 Elsevier.
- Jacob A. Frenkel & Michael L. Mussa, 1984. "Asset Markets, Exchange Rates and the Balance of Payments," NBER Working Papers 1287, National Bureau of Economic Research, Inc.
- Frenkel, Jacob A & Rodriguez, Carlos Alfredo, 1975. "Portfolio Equilibrium and the Balance of Payments: A Monetary Approach," American Economic Review, American Economic Association, vol. 65(4), pages 674-688, September. Full references (including those not matched with items on IDEAS)