Mundell Fleming

CFA Level II
#1

Hi All,

Easy way to remeber Mundell-Fleming concepts

M** F H L** E E U A E R D U R E A U R R U A

M= Monetary Policy

F= Fiscal Policy

H=High Capital Mobility

L=Low Capital Mobility

A=Currency Appreciation

D=Currency Depreciation

U=Uncertain

E=Expansionary

R=Recssionary

#2

m f h l + + 0 - + - - 0 - + + 0 - - 0 + top two are depreciate, bottom two are appreciate

#3

the easiest way is to understand it :smiley: but good trial though

#4

You guys are making it way too complicated.

Just remember that in a low mobility economy, Monetary and Fiscal policy should be the same for the currency to depreciate or appreciate.

For example, under Low mobility -> Expansionary Monetary Policy and Expansionary Fiscal Policy -> Currency Depreciate.

For Restrictive Monetary Policy and Restrictive Expansionary Fiscal Policy -> Currency Appreciates.

Any other combination, it’s ambiguous

Under high mobility economy, Monetary and Fiscal Policy point in opposite directions. Otherwise it’s ambiguous

For example, under High mobility -> Expansionary Monetary Policy and Restrictive Fiscal Policy -> Currency Depreciates

For Restrictive Monetary Policy and Expansionary Fiscal Policy -> Currency Appreciates

So the way to think of it is:

  1. Are you low mobility or high mobility?

  2. If low mobility then both should be expansionary or both should be fiscal. Otherwise, it’s ambiguous.

  3. If high mobility then one should be expansionary and one should be fiscal. Otherwise, it’s ambiguous

  4. To determine if it depreciates or appreciates, just look at the monetary policy and ignore the fiscal policy. If it’s expansionary then currency should depreciate. If it’s restrictive, then currency should appreciate.