Market Earth: mundell fleming have we really in practice got past this model ??

Thursday, January 5, 2012

mundell fleming have we really in practice got past this model ??

wiki:

"The Mundell-Fleming model.

$Y=C+I+G+NX \,$ (the IS curve)

where $Y \,$ is gros spending
$C$ is household spending
$I$ is firm spending

G is

government spending
                 NX is net exports ( x-m)
                 x   exports
                 m imports

$\frac{M}{P}=L(i, Y)$ (The LM Curve)

- where $M$ is the nominal money supply,
- $P$ is the price level,
- $L$ is liquidity preference ( real money demand),
- $i$ is the nominal interest rate. A higher interest rate or a lower income (GDP) level leads to lower money demand.
.........
(The BoP Curve (Balance of Payments))
- where $B o P$ is the balance of payments surplus,
- $CA \,$ is the current account surplus,
- $K A$ is the capital account surplus.
functional relationships:
- where $T$ is taxes,
- $i$ is the nominal interest rate,
- $E (π)$ is the expected rate of inflation.
- Higher disposable income (y-t) or a lower real interest rate ( i - $E (π)$ )
- leads to higher consumption spending.
- where $I$ is corporate spending and $Y - 1$ is income in the previous period.
- Higher lagged income or a lower real interest rate leads to higher investment spending.
$G$ , government spending a control variable
$N X = N X (e, Y, Y * )$
- $e$ is the nominal forex rate (the price of domestic currency in terms of units of the foreign currency)
- $Y *$ is the combined GDP of countries that are foreign trading partners.
- Higher domestic income (GDP) leads to more spending on imports and hence lower net exports; higher foreign income leads to higher spending by foreigners on the country's exports and thus higher net exports. A higher e (more expensive domestic currency in terms of foreign currency, and equivalently less expensive foreign currency in terms of domestic currency) leads to more purchasing of foreign goods due to the lesser cost of acquiring the foreign currency to pay for them, and also leads to less purchasing of the country's exports by foreigners since they find it more costly to acquire the country's currency with which to pay for them; for both reasons, higher e leads to lower net exports.

[edit] Balance of payments (BoP) components

CA = NX
- where $C A$ is the current account and $N X$ is net exports. That is, the current account is viewed as consisting solely of imports and exports.

KA = z(i − i * ) + k
- where $i *$ is the foreign interest rate, $k$ is the exogenous component of financial capital flows, $z (.)$ is the interest-sensitive component of capital flows, and the derivative of the function $z$ is the degree of capital mobility (the effect of differences between domestic and foreign interest rates upon capital flows KA). This derivative is positive if there is any capital mobility (since a higher relative domestic interest rate makes funds more prone to flow into the country), and it is infinitely positive if there is perfect capital mobility

one has a system of three equations in three unknowns,
two of which are income and the domestic interest rate.

Under flexible exchange rates the forex is an additional control variable
besides M and G

with fixed forex
e is a constant

BOP the balance of payments surplus is determined by the model
and G or M are the control variables

-----------------------------------------------------

the reality is
mundell is enough

for practical purposes

the computability fetish
the b uilt from agents up fetish

nonsense !!

kick it in
as john cougar sez
and see what numbers come up