TY  - EJOU
AU  - 
T1  - Are the Predictions of the Mundell-Fleming Model Applicable to Mexico?
T2  - The Economics and Finance Letters

PY  - 2021
VL  - 8
IS  - 1
SN  - 2312-430X

AB  - According to the Mundell-Fleming model (Romer, 2006) under a floating exchange rate system, fiscal expansion is ineffective in raising output and causes real appreciation whereas monetary expansion raises output and causes real depreciation. Applying an extended Mundell-Fleming model, this paper employs a simultaneous-equation model to test whether the predictions of the Mundell-Fleming model would apply to Mexico. The GARCH process is employed in empirical work. This study finds that fiscal expansion reduces output and causes real appreciation and that monetary expansion raises output and leads to real depreciation. In addition, a higher real interest rate reduces output and causes real appreciation, and a higher real stock price results in real appreciation. Therefore, except for the impact of fiscal expansion on output, the Mundell-Fleming model applies to Mexico.
KW  - Fiscal expansion
KW  - Monetary expansion
KW  - Exchange rates
KW  - Mundell-Fleming model
KW  - Appreciation/depreciation
KW  - Money demand.
DO  - 10.18488/journal.29.2021.81.53.60