The Economics and Finance Letters 2312-6310 2312-430X 10.18488/journal.29.2021.81.53.60 The Economics and Finance Letters Are the Predictions of the Mundell-Fleming Model Applicable to Mexico? The Economics and Finance Letters The Economics and Finance Letters 06-2021 2021 06-2021 06-2021 8 1 53 60 20 Feb 2020 12 Jan 2021 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.