Are the Predictions of the Mundell-Fleming Model Applicable to Mexico?

Yu Hsing

The Economics and Finance Letters, 2021, vol. 8, issue 1, 53-60

Abstract: According to the Mundell-Fleming model (Romer, 2006) under a floating exchange rate system, fiscal expansion is ineffective in raising output and causes real appreciation whereas monetary expansion raises output and causes real depreciation. Applying an extended Mundell-Fleming model, this paper employs a simultaneous-equation model to test whether the predictions of the Mundell-Fleming model would apply to Mexico. The GARCH process is employed in empirical work. This study finds that fiscal expansion reduces output and causes real appreciation and that monetary expansion raises output and leads to real depreciation. In addition, a higher real interest rate reduces output and causes real appreciation, and a higher real stock price results in real appreciation. Therefore, except for the impact of fiscal expansion on output, the Mundell-Fleming model applies to Mexico.

Keywords: Fiscal expansion; Monetary expansion; Exchange rates; Mundell-Fleming model; Appreciation/depreciation; Money demand (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://archive.conscientiabeam.com/index.php/29/article/view/1664/2315 (application/pdf)
https://archive.conscientiabeam.com/index.php/29/article/view/1664/4929 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pkp:teafle:v:8:y:2021:i:1:p:53-60:id:1664

Access Statistics for this article

More articles in The Economics and Finance Letters from Conscientia Beam
Bibliographic data for series maintained by Dim Michael ().