Le modèle Mundell-Fleming: Au cœur de la macroéconomie internationale ( Culture économique t. 7) (French Edition) – Kindle edition by Jean Blaise Mimbang. 17 juil. traditionnel de Mundell-Fleming a ensuite souligné la dichotomie . () a par exemple proposé récemment, le critère d’homogénéité des. View Notes – Chapitre 4 – from ECONOMIE at Université de Nantes. Modle de Mundell-Fleming IS-LM en conomie ouverte A partir du modle de.

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Economics models International macroeconomics Open economy macroeconomics.

The reason is that a large open economy has the characteristics of both an autarky and a small open economy. It is worth noting that some of the results from this model differ from those of ed IS-LM model because of the open economy assumption. The shift results in an incipient rise in the interest rate, and hence upward pressure on the exchange rate value of the domestic currency as foreign funds flwming to flow in, attracted by the higher interest rate.

Consider an exogenous increase mnudell government expenditure. This depreciates the local currency and boosts net exports, shifting the IS curve to the right. To maintain the fixed exchange rate, the central bank must accommodate the capital flows in or out which are caused by a change of the global interest rate, in order to offset pressure on the exchange rate. Nevertheless, Dornbusch concludes that monetary policy is still mundeol even if it worsens a trade balance, because a monetary expansion pushes down interest rates and encourages spending.

Higher disposable income or a lower dleming interest rate nominal interest rate minus expected inflation leads to higher consumption spending. Reprinted in Cooper, Richard N. But for a small open economy with perfect capital mobility and a flexible exchange rate, the domestic interest rate is predetermined by the horizontal BoP curve, and so by the LM equation given previously there is exactly one level of output that can make the money market be in equilibrium at that interest rate.

## Modèle OG-DG

Mundell’s paper suggests that the model can be applied to Zurich, Brussels and so on. To maintain the exchange rate and eliminate pressure on it, the monetary authority purchases foreign currency using domestic funds in order to shift the LM curve to the right. By using this site, you agree to the Terms of Use and Privacy Policy. Any exogenous changes affecting the IS curve such as government spending changes will be exactly offset by resulting exchange rate changes, and the IS curve will end up in its original position, still intersecting the LM and BoP curves at their intersection point.

An increase in the global interest rate shifts the BoP curve upward and causes capital flows out of the local economy. Sargent Adam Smith Knut Wicksell. If there is pressure to appreciate the domestic currency’s exchange rate because the currency’s demand exceeds its supply in the foreign exchange market, the local authority buys foreign currency with domestic currency to increase the domestic currency’s supply in the foreign exchange market.

### Mundell–Fleming model – Wikipedia

The decrease in the money supply resulting from the outflow, shifts the LM curve to the left until it intersect the IS and BoP curves at their intersection. Again, this keeps the exchange rate at its targeted level. That being said, capital outflow will increase which will lead to a decrease in the real exchange rate, ultimately shifting the IS curve right until interest rates equal global interest rates assuming horizontal BOP. This principle is frequently called the ” impossible trinity ,” “unholy trinity,” “irreconcilable trinity,” “inconsistent trinity,” policy trilemma,” or the “Mundell—Fleming trilemma.

The denominator is positive, and the numerator is positive or negative. The exchange rate changes enough to shift the IS curve to the location where it crosses the new BoP curve at its intersection with the unchanged LM curve; now the domestic interest rate equals the new level of the global interest rate.

Under perfect capital mobility, the BoP curve is always horizontal at the level of the world interest rate. An increase in money supply shifts the LM curve to the right.

### Modèle OG-DG — Wikipédia

Thus, a monetary expansion, in the short run, does not necessarily improve the trade balance. If the central bank is maintaining an exchange rate that is consistent with a balance of payments surplus, over time money will flow into the country and the money supply will rise and vice versa for a payments deficit.

Thus net payments flows into or out of the country need not equal zero; the exchange rate e is exogenously given, while the variable BoP is endogenous.

In the closed economy model, if the central bank expands the money supply the LM curve shifts out, and as a result income goes up and the domestic interest rate goes down. If the global interest rate increases, shifting the BoP curve upward, capital flows out to take advantage of the opportunity. If the global interest rate declines below the domestic rate, the opposite occurs.

In contrast, under fixed exchange rates e is exogenous and the balance of payments surplus is determined by the model.

This directly reduces the local interest rate relative to the global interest rate. Whereas the traditional IS-LM model deals with economy under autarky or l closed economythe Mundell—Fleming model describes a small open economy. An expansionary monetary policy resulting in an incipient outward shift of the LM curve would make capital flow out of the economy.

In the IS-LM model, the domestic interest rate is a key component in keeping both the money market and the goods market in equilibrium. In the very short run the money supply is normally predetermined by the past history of international payments flows. In a system of fixed exchange rates, central banks announce an exchange rate the parity rate at which they are prepared to buy or sell any amount of domestic currency.

The strengthening of the modlw will mean it is more expensive for domestic producers to export so net exports will decrease therefore cancelling out the rise in government spending and shifting the IS curve to the left. In a system of flexible exchange rates, central banks allow the exchange rate to munell determined by market forces alone.

Under the fixed exchange rate system, the central bank operates in the foreign exchange market to maintain a specific exchange rate. In particular, it dw not face perfect capital mobility, thus allowing internal policy measures to affect the domestic interest rate, and it may be able to sterilize balance-of-payments-induced changes in the money supply as discussed above.

Under fleminv exchange rates, the nominal money supply is completely under the control of the central bank.

Investment and consumption increase as the interest rates decrease, and currency depreciation improves the trade balance. Basic assumptions of the model are as follows: This will mean that domestic interest rates and GDP rise.

However, in reality, the world interest rate is different from the domestic rate. The central bank under a fixed exchange rate system would have to instantaneously intervene by selling foreign money in exchange for domestic money to maintain the exchange rate. Development Growth Monetary Political economy. The accommodated monetary outflows exactly offset the intended rise in the domestic money supply, completely offsetting the tendency of the LM curve to shift to the right, and the interest rate remains equal to the world rate of interest.

This keeps the domestic currency’s exchange rate at its targeted level. He adds that, in the short run, fiscal policy works because it raises interest rates and the velocity of money. The IS curve is downward sloped and the LM curve is upward sloped, as in the closed economy IS-LM analysis; the BoP curve is upward sloped unless there is perfect capital mobility, in which case it is horizontal at the level of the world interest rate.

But under perfect capital mobility, any such sterilization would be met by further offsetting international flows.