Central Equations of the Mundell-Fleming Model[]
IS curve:
LM curve:
BP curve:
where:
output
consumption
taxes
investment
domestic real interest rate
government spending
net exports
real exchange rate (foreign currency in terms of domestic currency)
foreign output
money supply
price level
money demand
expected inflation
reserve gain (should be zero in equilibrium)
capital flows
foreign real interest rate
When totally differentiating the model equations, the following relationships are assumed to hold:
Graphs[]
Sources[]
Lectures by Paul Pieper (University of Illinois at Chicago), fall 2004.
David Romer, Advanced Macroeconomics