IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/64675.html
   My bibliography  Save this paper

Un modelo Mundell-Fleming con economía ilegal y lavado de dinero
[Modeling illegal economy and money laundering: a Mundell-Fleming framework]

Author

Listed:
  • Slim, Sadri

Abstract

The purpose of this paper is to present an extended version of the Mundell-Fleming model which allows a macroeconomic analysis of the effects stemming from illegal economy with money laundering on the short-term equilibrium for a small open economy. Without disregarding the FATF´s money laundering typology, we propose to differentiate the money laundering activities by the degree of crime organization, i.e. differentiating between individual, national as well as transnational crimes. According to the previous taxonomy, we postulate four channels of money laundering that enable the reintegration of illegal money, through consumption, investment, international trade and capital movements. In this context, it is shown that the multiplier effect triggered by illegal economic activities is always negative on formal GDP. However, the effect on the interest rate is subtler and depends on the structure of the given economy, which could lead to an appreciation or depreciation of the exchange rate related to the degree of capital mobility.

Suggested Citation

  • Slim, Sadri, 2015. "Un modelo Mundell-Fleming con economía ilegal y lavado de dinero [Modeling illegal economy and money laundering: a Mundell-Fleming framework]," MPRA Paper 64675, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:64675
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/64675/1/MPRA_paper_64675.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Catalina Granda-Carvajal, 2012. "Macroeconomic Implications of the Underground Sector: Challenging the Double Business Cycle Approach," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 237-256, September.
    2. Maurice Obstfeld, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," NBER Working Papers 8369, National Bureau of Economic Research, Inc.
    3. Christopher Bajada, 2003. "Business Cycle Properties of the Legitimate and Underground Economy in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 397-411, December.
    4. Friedrich Schneider & Ursula Windischbauer, 2008. "Money laundering: some facts," European Journal of Law and Economics, Springer, vol. 26(3), pages 387-404, December.
    5. Robert A. Mundell, 1960. "The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 74(2), pages 227-257.
    6. Amedeo Argentiero & Michele Bagella & Francesco Busato, 2008. "Money laundering in a two-sector model: using theory for measurement," European Journal of Law and Economics, Springer, vol. 26(3), pages 341-359, December.
    7. David A. Bright & Jordan J. Delaney, 2013. "Evolution of a drug trafficking network: Mapping changes in network structure and function across time," Global Crime, Taylor & Francis Journals, vol. 14(2-3), pages 238-260, May.
    8. Jagdish Bhagwati & Bent Hansen, 1973. "A Theoretical Analysis of Smuggling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(2), pages 172-187.
    9. Vittorio, Daniele & Ugo, Marani, 2008. "Organized Crime and Foreign Direct Investment: the Italian Case," MPRA Paper 7217, University Library of Munich, Germany.
    10. Ila Patnaik & Abhijit Sen Gupta & Ajay Shah, 2012. "Determinants of Trade Misinvoicing," Open Economies Review, Springer, vol. 23(5), pages 891-910, November.
    11. Gupta, Pranav Kumar & Roy, Devesh & Ahmad, Kaikaus, 2012. "Close eye or closed eye: The case of export misinvoicing in Bangladesh," IFPRI discussion papers 1157, International Food Policy Research Institute (IFPRI).
    12. Perez, M. Fabricio & Brada, Josef C. & Drabek, Zdenek, 2012. "Illicit money flows as motives for FDI," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 108-126.
    13. kant, C., 1996. "Foreign Direct Investment and Capital Flight," Princeton Studies in International Economics 80, International Economics Section, Departement of Economics Princeton University,.
    14. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Fleming Model a Quarter Century Later: A Unified Exposition," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 567-620, December.
    15. Warren Young & William Darity, Jr., 2004. "IS-LM-BP: An Inquest," History of Political Economy, Duke University Press, vol. 36(5), pages 127-164, Supplemen.
    16. Luisanna Onnis & Patrizio Tirelli, 2015. "Shadow economy: Does it matter for money velocity?," Empirical Economics, Springer, vol. 49(3), pages 839-858, November.
    17. Mr. James M. Boughton, 2002. "On the Origins of the Fleming-Mundell Model," IMF Working Papers 2002/107, International Monetary Fund.
    18. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(1), pages 230-231, January.
    19. 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.
    20. Catalina Granda-Carvajal, 2010. "The Unofficial Economy and the Business Cycle: A Test for Theories," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 573-586.
    21. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(4), pages 876-878, October.
    22. Capuano, Carlo & Purificato, Francesco, 2012. "The macroeconomic impact of organized crime: a neo-Kaleckian perspective," MPRA Paper 40077, University Library of Munich, Germany.
    23. Soumyen Sikdar, 2008. "Capital Inflow into Developing Economies: A Macroeconomic Study," ISER Discussion Paper 0725, Institute of Social and Economic Research, Osaka University.
    24. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    25. Maria de Boyrie & Simon Pak & John Zdanowicz, 2005. "The impact of Switzerland's money laundering law on capital flows through abnormal pricing in international trade," Applied Financial Economics, Taylor & Francis Journals, vol. 15(4), pages 217-230.
    26. Slim, Sadri, 2007. "Construction d’un modèle macroéconomique keynésien avec économie informelle: un exercice de simulation [Construction of a Keynesian macroeconomic model with informal economy: a simulation exercise]," MPRA Paper 20656, University Library of Munich, Germany.
    27. Beja, Edsel Jr., 2006. "Forensic Accounting: Hidden balance of payments of the Philippines," MPRA Paper 4828, University Library of Munich, Germany, revised 12 Sep 2007.
    28. Slim, Sadri, 2013. "Un modelo IS/LM con economía ilegal y lavado de dinero [Modeling illegal economy and money laundering: an IS/LM framework]," MPRA Paper 46304, University Library of Munich, Germany.
    29. Claudio Detotto & Edoardo Otranto, 2010. "Does Crime Affect Economic Growth?," Kyklos, Wiley Blackwell, vol. 63(3), pages 330-345, August.
    30. Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-136.
    31. Jean-Paul Pollin, 2003. "Une macroéconomie sans LM quelques propositions complémentaires," Revue d'économie politique, Dalloz, vol. 113(3), pages 273-293.
    32. Zdanowicz John S., 2009. "Trade-Based Money Laundering and Terrorist Financing," Review of Law & Economics, De Gruyter, vol. 5(2), pages 855-878, December.
    33. Anonymous, 1962. "International Monetary Fund," International Organization, Cambridge University Press, vol. 16(3), pages 619-631, July.
    34. Patrick Villieu, 2004. "Une macroéconomie sans LM ?. Un modèle de synthèse pour l'analyse des politiques conjoncturelles," Revue d'économie politique, Dalloz, vol. 114(3), pages 289-322.
    35. Simon J. Pak & Stelios H. Zanakis & John S. Zdanowicz, 2003. "Detecting Abnormal Pricing in International Trade: The Greece-USA Case," Interfaces, INFORMS, vol. 33(2), pages 54-64, April.
    36. Krugman, Paul, 2000. "How Complicated Does the Model Have to Be?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(4), pages 33-42, Winter.
    37. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Flemming Model: A Quarter Century Later," NBER Working Papers 2321, National Bureau of Economic Research, Inc.
    38. Anne O. Krueger, 1965. "The Impact of Alternative Government Policies Under Varying Exchange Systems," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 79(2), pages 195-208.
    39. Michael Michaely, 1968. "The Impact of Alternative Government Policies under Varying Exchange Systems: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 508-510.
    40. Ms. Era Dabla-Norris & Mr. Andrew Feltenstein, 2003. "An Analysis of the Underground Economy and its Macroeconomic Consequences," IMF Working Papers 2003/023, International Monetary Fund.
    41. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James M. Boughton, 2003. "On the Origins of the Fleming-Mundell Model," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-1.
    2. Mr. James M. Boughton, 2002. "On the Origins of the Fleming-Mundell Model," IMF Working Papers 2002/107, International Monetary Fund.
    3. Maurice Obstfeld, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," NBER Working Papers 8369, National Bureau of Economic Research, Inc.
    4. Yiping Huang & Peichu Xie & Jiao Wang, 2014. "International Transmission of the People's Bank of China's Balance Sheet Expansion," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(2), pages 276-296, July.
    5. Thi Bich Ngoc Tran & Hoang Cam Huong Pham, 2020. "The Spillover Effects of the US Unconventional Monetary Policy: New Evidence from Asian Developing Countries," JRFM, MDPI, vol. 13(8), pages 1-26, July.
    6. Jimmy W. Wheeler, 1972. "Domestic Policy and International Exchange Rate Movements, A Review," The American Economist, Sage Publications, vol. 16(2), pages 123-128, October.
    7. Christopher Allsopp & David Vines, 2015. "Monetary and fiscal policy in the Great Moderation and the Great Recession," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 31(2), pages 134-167.
    8. Kevin Gallagher, 2012. "The Myth of Financial Protectionism: The New (and old) Economics of Capital Controls," Working Papers wp278, Political Economy Research Institute, University of Massachusetts at Amherst.
    9. Darius, Reginald, 2010. "The macroeconomic effects of monetary and fiscal policy in a small open economy: Does the exchange rate regime matter?," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1508-1528, December.
    10. Edward Ghartey, 2006. "Exchange Pressure, Sterilized Intervention and Monetary Policy in Ghana," EcoMod2006 272100031, EcoMod.
    11. Michael Michaely, 1971. "An Over-all View of Policy Patterns," NBER Chapters, in: The Responsiveness of Demand Policies to Balance of Payments: Postwar Patterns, pages 30-70, National Bureau of Economic Research, Inc.
    12. Colin Ellis & Emilia Gyoerk, 2019. "Investigating the Economic and Financial Damage around Currency Peg Failures," JRFM, MDPI, vol. 12(2), pages 1-16, May.
    13. Juan Carlos de Pablo, 2004. "La Economía como proceso decisorio. Mi versión," CEMA Working Papers: Serie Documentos de Trabajo. 267, Universidad del CEMA.
    14. Özer Karagedikli & Troy Matheson & Christie Smith & Shaun P. Vahey, 2010. "RBCs AND DSGEs: THE COMPUTATIONAL APPROACH TO BUSINESS CYCLE THEORY AND EVIDENCE," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 113-136, February.
    15. António Afonso & José Carlos Coelho, 2021. "60%, -4% And 6%, a Tale of Thresholds for EU Fiscal and Current Account Developments," EconPol Working Paper 69, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    16. António Afonso & José Carlos Coelho, 2021. "Current Account Targeting Hypothesis versus Twin Deficit Hypothesis: The EMU Experience of Portugal," EconPol Working Paper 68, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    17. Adam Geršl & Tomáš Holub, 2006. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 475-491, October.
    18. Peter N. Ireland, 2005. "The Monetary Transmission Mechanism," Boston College Working Papers in Economics 628, Boston College Department of Economics.
    19. José Carlos Coelho, 2020. "A new assessment of the Troika ´s economic policy for Portugal in 2012 following an Input-Output approach," Working Papers REM 2020/0121, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    20. Stephen M. Miller & Frank S. Russek, 1989. "Are The Twin Deficits Really Related?," Contemporary Economic Policy, Western Economic Association International, vol. 7(4), pages 91-115, October.

    More about this item

    Keywords

    Illegal Economy; Money Laundering; Mundell-Fleming; Flexible Exchange Rate; Multiplier; Money Demand; Liquidity Preference;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:64675. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.