A Note on the Mundell-Fleming Model: Policy Implications on Factor Migration

Hannu Laurila
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Hannu Laurila: School of Management, University of Tampere

No 757, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: The policy implications of the seminal Mundell-Fleming model are reviewed in the classical long-term regime of the full Neo-Keynesian macroeconomic model. It is shown that, besides the temporary capital flows described by the Mundell-Fleming model, both fiscal and monetary policy may have longer lasting effects on factor migration. A positive policy shock motivates emigration of labour and inflow of capital, and vice versa. Under imperfect mobility of labour, the effect on labour migration depends on whether the domestic transaction costs of revising the contracts are higher or lower than the costs of international mobility.

Keywords: exchange rates; fiscal and monetary policy (search for similar items in EconPapers)
JEL-codes: E63 F22 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2007-08
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http://urn.fi/urn:isbn:978-951-44-70-42-4 First version, 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0757

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