CFA Level 2 | Economics: The Mundell-Fleming Model
CFA Level 2
Topic: Economics
Learning Module: Currency Exchange Rates: Understanding Equilibrium Value
The Mundell–Fleming model describes how changes in monetary and fiscal policy affect interest rates and economic activity, which in turn leads to changes in capital and trade flows, eventually affecting the exchange rate.
A key is to establish whether capital mobility is high or low before we look at the combination of the fiscal & monetary policies (expansionary/restrictive).
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