Intermediate Macroeconomics
Lecture 15
The Open Economy in the SR
? The Mundell-Fleming Model
? Model under a floating ex-rate
? Model under a fixed ex-rate
? Interest-rate differentials
? Debate over floating v.s,fixed ex-rate
? Mundell-Fleming model with changing price level
? Model in large open economy
The Mundell-Fleming model
? Robert A,Mundell
1999 Nobel Price in Economics
a,Monetary & fiscal policy under different ex-rate
regimes
b,Optimal currency area
Other contribution,
a,Mundell-Tobin effect
b,International trade
The Mundell-Fleming Model
? Crucial assumption,SOE ? r = r*
? Components of the model
Y = C (Y-T) + I (r*) + G + NX (e)
M/P=L (r,Y)
r = r*
The Mundell-Fleming Model
1,The model on a Y --- r graph
r
Y
IS (e)
LM
r = r*
The Mundell-Fleming Model
IS curve and ex-rate
(IS curve is drawn for a given ex-rate)
Ex-rate↑ ? domestic currency____
? IM ___ & EX ___ (NX__)
? IS shifts _____
? Y _____
The Mundell-Fleming Model
? What if domestic r > r*
r
Y
IS (e)
LM
r*
The Mundell-Fleming Model
2,The model on a Y --- e graph
1) Goods market ? IS* curve
E = C (Y-T) + I (r*) + G + NX (e)
e2
e2
E
Y
Y=E
E
e1
Y1 Y2
IS*
e
Y
e1
NX
e
NX(e)
The Mundell-Fleming Model
2) Money market and LM* curve
M/P=L (r*,Y)
r
Y
Y
LM
e
r*
LM*
The Mundell-Fleming Model
3) IS* & LM*
e
Y
IS*
LM*
Ex-rate Regime
? History of world ex-rate regimes
a,Gold standard (19th century)
b,Bretton Woods system (1944-60s)
c,Jamaica system (1976)
d,Bretton Woods II (prediction)
Ex-rate Regime
? 1982分类,
1,钉住汇率, 钉住单一（合成）货币
2,有限灵活汇率, 对单一货币在汇率带内
进行浮动
3,更加灵活汇率, 管理浮动 ; 按一套指标
调整 ; 自由浮动
Ex-rate Regime
图1,汇率选择演变过程
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
钉住汇率
有限灵活汇率
更加灵活汇率
Ex-rate Regime
? 1999分类,
1,无独立法定货币,一国采用另一国货币作为
唯一法定货币，或隶属于某一货币联盟，共
同使用同一法定货币。
2,货币发行局制度：货币发行当局根据法定承
诺按照固定汇率来承兑指定的外币，并通过
对货币发行权的限制来保证履行法定承兑义
务
--- 严格固定汇率制
Ex-rate Regime
3,其他传统的固定钉住制：国家将其货币以一个固定的汇率钉住
（官方或者实际）某一种主要外币或者钉住某一篮子外币，汇 率波动围绕着中心汇率上下不超过 1%
4,钉住平行汇率带：汇率被保持在官方或者实际的固定汇率带内
波动，其波幅超过围绕中心汇率上下各 1%的幅度
5,爬行钉住：汇率按照固定的、预先宣布的比率作较小的定期调 整或依据所选取的定量指标的变化作定期调整
6,爬行带内浮动：汇率围绕着中心汇率在一定幅度内上下浮动，
同时中心汇率按照固定的、预先宣布的比率作定期调整或根据 所选取的定量指标的变化作定期调整；
7,不事先宣布汇率干预方式的管理浮动：货币当局通过在外汇市
场上积极干预来影响汇率的变动，但不事先宣布对汇率的干预
方式。
------- 中间汇率制
Ex-rate Regime
8,独立浮动：汇率基本上由市场决定，
偶尔的外汇干预旨在缓和汇率变动、
防止汇率过度波动，而不是为汇率建
立一个基准水平
--- 完全浮动汇率制
Ex-rate Regime
图2：1999-2001汇率制度演变情况
0
20
40
60
80
100
120
1999.1.1 2000.3.31 2001.3.31 2001.12.31
国家数量
严格固定汇率制
中间汇率制
完全浮动汇率制
Ex-rate Regime
? 我国汇率制度,
---以市场供求为基础的、单一的、有管理
的浮动汇率制度
“单一钉住美元的固定汇率制”
The SOE Under Floating Ex-rate
? Fiscal policy
e
Y
IS*
LM*
The SOE Under Floating Ex-rate
? Expansionary fiscal policy
? upward pressure on r
? NFI ↓
? NX ↓(offsets the↑in domestic D for
G&S)
? Ex-rate ↑
The SOE Under Floating Ex-rate
? Monetary policy
e
Y
IS*
LM*
The SOE Under Floating Ex-rate
? Expansionary monetary policy
? downward pressure on r
? NFI↑
? NX ↑
? Ex-rate↓
The SOE Under Floating Ex-rate
Under a floating ex-rate system,
fiscal policy does NOT have
effect on real output/income
The SOE Under Floating Ex-rate
? Trade policy (import quota or tariff)
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? How does the system works?
? central bank buys/sells domestic currency
? monetary policy is sacrificed
The SOE Under Fixed Ex-rate
? Real or nominal ex-rate is fixed?
Nominal?
Fixed for sure ?
Real?
Depends on …
Prices are flexible or not
SR ? NO! ? real ex-rate also fixed
The SOE Under Fixed Ex-rate
? Fiscal policy
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? Monetary policy
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? Fixed ex-rate ≠ ex-rate cannot be changed
? A country can decide to change the level at
which the exchange rate is fixed,
The SOE Under Fixed Ex-rate
? Trade policy
e
Y
IS*
LM*
Summary of the M-F Model
Ex-rate regime 浮 动 固 定
Y e NX Y e NX
Fiscal expansion 0 ↑ ↓ ↑ 0 0
Monetary expansion ↑ ↓ ↑ 0 0 0
Import restriction 0 ↑ 0 ↑ 0 ↑
Summary of the M-F Model
? The power of monetary and
fiscal policy to influence
aggregate income depends
on the ex-rate regime
Summary of the M-F Model
? Floating,
? only monetary policy can affect income
? the expansionary impact of fiscal policy is offset by
a rise in the value of the currency and a decrease in
NX
? Fixed,
? only fiscal policy can affect income
? the potency of monetary policy is lost because the
MS is dedicated to maintaining the ex-rate at the
announced level
Lecture 15
The Open Economy in the SR
? The Mundell-Fleming Model
? Model under a floating ex-rate
? Model under a fixed ex-rate
? Interest-rate differentials
? Debate over floating v.s,fixed ex-rate
? Mundell-Fleming model with changing price level
? Model in large open economy
The Mundell-Fleming model
? Robert A,Mundell
1999 Nobel Price in Economics
a,Monetary & fiscal policy under different ex-rate
regimes
b,Optimal currency area
Other contribution,
a,Mundell-Tobin effect
b,International trade
The Mundell-Fleming Model
? Crucial assumption,SOE ? r = r*
? Components of the model
Y = C (Y-T) + I (r*) + G + NX (e)
M/P=L (r,Y)
r = r*
The Mundell-Fleming Model
1,The model on a Y --- r graph
r
Y
IS (e)
LM
r = r*
The Mundell-Fleming Model
IS curve and ex-rate
(IS curve is drawn for a given ex-rate)
Ex-rate↑ ? domestic currency____
? IM ___ & EX ___ (NX__)
? IS shifts _____
? Y _____
The Mundell-Fleming Model
? What if domestic r > r*
r
Y
IS (e)
LM
r*
The Mundell-Fleming Model
2,The model on a Y --- e graph
1) Goods market ? IS* curve
E = C (Y-T) + I (r*) + G + NX (e)
e2
e2
E
Y
Y=E
E
e1
Y1 Y2
IS*
e
Y
e1
NX
e
NX(e)
The Mundell-Fleming Model
2) Money market and LM* curve
M/P=L (r*,Y)
r
Y
Y
LM
e
r*
LM*
The Mundell-Fleming Model
3) IS* & LM*
e
Y
IS*
LM*
Ex-rate Regime
? History of world ex-rate regimes
a,Gold standard (19th century)
b,Bretton Woods system (1944-60s)
c,Jamaica system (1976)
d,Bretton Woods II (prediction)
Ex-rate Regime
? 1982分类,
1,钉住汇率, 钉住单一（合成）货币
2,有限灵活汇率, 对单一货币在汇率带内
进行浮动
3,更加灵活汇率, 管理浮动 ; 按一套指标
调整 ; 自由浮动
Ex-rate Regime
图1,汇率选择演变过程
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
钉住汇率
有限灵活汇率
更加灵活汇率
Ex-rate Regime
? 1999分类,
1,无独立法定货币,一国采用另一国货币作为
唯一法定货币，或隶属于某一货币联盟，共
同使用同一法定货币。
2,货币发行局制度：货币发行当局根据法定承
诺按照固定汇率来承兑指定的外币，并通过
对货币发行权的限制来保证履行法定承兑义
务
--- 严格固定汇率制
Ex-rate Regime
3,其他传统的固定钉住制：国家将其货币以一个固定的汇率钉住
（官方或者实际）某一种主要外币或者钉住某一篮子外币，汇 率波动围绕着中心汇率上下不超过 1%
4,钉住平行汇率带：汇率被保持在官方或者实际的固定汇率带内
波动，其波幅超过围绕中心汇率上下各 1%的幅度
5,爬行钉住：汇率按照固定的、预先宣布的比率作较小的定期调 整或依据所选取的定量指标的变化作定期调整
6,爬行带内浮动：汇率围绕着中心汇率在一定幅度内上下浮动，
同时中心汇率按照固定的、预先宣布的比率作定期调整或根据 所选取的定量指标的变化作定期调整；
7,不事先宣布汇率干预方式的管理浮动：货币当局通过在外汇市
场上积极干预来影响汇率的变动，但不事先宣布对汇率的干预
方式。
------- 中间汇率制
Ex-rate Regime
8,独立浮动：汇率基本上由市场决定，
偶尔的外汇干预旨在缓和汇率变动、
防止汇率过度波动，而不是为汇率建
立一个基准水平
--- 完全浮动汇率制
Ex-rate Regime
图2：1999-2001汇率制度演变情况
0
20
40
60
80
100
120
1999.1.1 2000.3.31 2001.3.31 2001.12.31
国家数量
严格固定汇率制
中间汇率制
完全浮动汇率制
Ex-rate Regime
? 我国汇率制度,
---以市场供求为基础的、单一的、有管理
的浮动汇率制度
“单一钉住美元的固定汇率制”
The SOE Under Floating Ex-rate
? Fiscal policy
e
Y
IS*
LM*
The SOE Under Floating Ex-rate
? Expansionary fiscal policy
? upward pressure on r
? NFI ↓
? NX ↓(offsets the↑in domestic D for
G&S)
? Ex-rate ↑
The SOE Under Floating Ex-rate
? Monetary policy
e
Y
IS*
LM*
The SOE Under Floating Ex-rate
? Expansionary monetary policy
? downward pressure on r
? NFI↑
? NX ↑
? Ex-rate↓
The SOE Under Floating Ex-rate
Under a floating ex-rate system,
fiscal policy does NOT have
effect on real output/income
The SOE Under Floating Ex-rate
? Trade policy (import quota or tariff)
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? How does the system works?
? central bank buys/sells domestic currency
? monetary policy is sacrificed
The SOE Under Fixed Ex-rate
? Real or nominal ex-rate is fixed?
Nominal?
Fixed for sure ?
Real?
Depends on …
Prices are flexible or not
SR ? NO! ? real ex-rate also fixed
The SOE Under Fixed Ex-rate
? Fiscal policy
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? Monetary policy
e
Y
IS*
LM*
The SOE Under Fixed Ex-rate
? Fixed ex-rate ≠ ex-rate cannot be changed
? A country can decide to change the level at
which the exchange rate is fixed,
The SOE Under Fixed Ex-rate
? Trade policy
e
Y
IS*
LM*
Summary of the M-F Model
Ex-rate regime 浮 动 固 定
Y e NX Y e NX
Fiscal expansion 0 ↑ ↓ ↑ 0 0
Monetary expansion ↑ ↓ ↑ 0 0 0
Import restriction 0 ↑ 0 ↑ 0 ↑
Summary of the M-F Model
? The power of monetary and
fiscal policy to influence
aggregate income depends
on the ex-rate regime
Summary of the M-F Model
? Floating,
? only monetary policy can affect income
? the expansionary impact of fiscal policy is offset by
a rise in the value of the currency and a decrease in
NX
? Fixed,
? only fiscal policy can affect income
? the potency of monetary policy is lost because the
MS is dedicated to maintaining the ex-rate at the
announced level
