Policy Implications of the Mundell-Fleming Model, and the Assignment Problem

Giancarlo Gandolfo

Chapter 11 in International Finance and Open-Economy Macroeconomics, 2016, pp 221-242 from Springer

Abstract: Abstract In a regime of fixed exchange rates, the problem of achieving and maintaining simultaneous external and internal balance may seem in certain cases to be insoluble. These are the so-called dilemma cases, as for example a balance-of-payments deficit accompanied by a situation of underemployment. One of the great innovations of the Mundell-Fleming model was to show that both targets can be achieved by an appropriate combination of fiscal and monetary policies.This is made possible using what Mundell called principle of effective market classification, according to which each instrument must be used in relation to the objective upon which it has relatively more influence.

Keywords: Exchange Rate; Interest Rate; Monetary Policy; Fiscal Policy; Money Supply (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-662-49862-0_11

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DOI: 10.1007/978-3-662-49862-0_11

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