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The Mundell-Fleming Model: A Dirty Float Version

Author

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  • Waldo Mendoza Bellido

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

Abstract

A popular model in the teaching of macroeconomics of open economies at the undergraduate level is the Mundell-Fleming (MF). This model assumes that there is free capital mobility and takes into account two extreme exchange rate regimes: fixed and freely floating. But there is a third regime, currently of relevance to many central banks, which is not addressed in the MF: one in which the central bank sets the short-term interest rate and maintains a dirty-float exchange-rate regime. In this paper, an MF with these characteristics is presented. It is a simple, practical and user-friendly model that can be used to address contemporary issues, making it suitable for central banks or the teaching of macroeconomics at undergraduate level as a complement –or even a substitute– for the traditional MF. JEL Classification-JEL: E42, E52, E58, f41 Keywords: Dirty float, Mundell-Fleming Model, Imperfect capital mobility.

Suggested Citation

  • Waldo Mendoza Bellido, 2019. "The Mundell-Fleming Model: A Dirty Float Version," Documentos de Trabajo / Working Papers 2019-477, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00477
    DOI: 10.18800/2079-8474.0477
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    References listed on IDEAS

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    1. Waldo Mendoza Bellido & Erika Collantes Goicochea, 2018. "Private Investment in a Mining Export Economy: a Model for Peru," Documentos de Trabajo / Working Papers 2018-460, Departamento de Economía - Pontificia Universidad Católica del Perú.
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    1. Waldo Mendoza Bellido & Erika Collantes Goicochea, 2018. "The Determinants of Private Investment in a Mining Export Economy. Peru: 1997-2017," Documentos de Trabajo / Working Papers 2018-463, Departamento de Economía - Pontificia Universidad Católica del Perú.
    2. Mario D. Tello, 2019. "El sector gastronómico en el Perú: Encadenamientos y su potencial en crecimiento económico," Documentos de Trabajo / Working Papers 2019-475, Departamento de Economía - Pontificia Universidad Católica del Perú.

    More about this item

    Keywords

    dirty float; mundell-fleming model; imperfect capital mobility.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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