Modelo Mundell - Fleming | Cap. 17 - Macroeconomía
Introduction to the Mundell-Fleming Model
In this section, we will introduce the Mundell-Fleming model and discuss its fundamental assumptions. The model was developed by Robert Mundell and Marcus Fleming in the 1960s to analyze economic policy in an open economy.
Assumptions of the Model
- The Mundell-Fleming model is based on the IS-LM model seen in chapter 11, but it takes into account the international flow of capital and goods.
- There are two ways to present the model: a small open economy with perfect capital mobility or a large open economy.
- Robert Mundell's original position is to approach a small economy for easier study and to emphasize the effects of economic policy on model variables.
- In a small open economy, the national interest rate is determined by the international interest rate (r*), and the small economy cannot influence it.
Relationship between Interest Rate and Exchange Rate
This section explores how changes in interest rates affect capital flows and exchange rates in the Mundell-Fleming model.
- If the interest rate in a small open economy increases, it becomes more profitable for foreigners to bring in capital quickly. This inflow of capital increases the money supply, causing the interest rate (r) to fall until it equals r* again.
- The Mundell-Fleming model demonstrates a relationship between exchange rates and income levels of an economy.
Presentation of Large Open Economy
This section discusses how the Mundell-Fleming model can be presented for a large open economy where there is flexibility in determining interest rates internationally.
- In a large open economy, where interest rates are not fixed internationally, the economy has the ability to influence international financial markets.
- Factors such as capital flight abroad and preferences for domestic assets need to be taken into account when analyzing the relationship between interest rates and income levels.
Effects of Economic Measures
In this section, we will study the effects of economic measures in both small and large open economies according to the Mundell-Fleming model.
- The model allows for analyzing how different economic measures impact variables such as interest rates, exchange rates, and income levels in both types of open economies.
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