The Empirical Analysis on the Examination of Mundell-Fleming Hypothesis

다국어 초록 (Multilingual Abstract)

Mundell-Fleming model of an open economy assumes that the conditions of perfect capital mobility and static exchange rate. The implications of these conditions is that monetary policy influences aggregate demand entirely through effect on the exchange rate rather than interest rates. In this paper, I investigated a hypothesis due to Mundell(1968) using VAR methodology in case of various countries. The Mundell-Fleming model leads to strong conclusions about the international transmission of monetary policy which has negative spillover effects on foreign output. However, it is evident from the results obtained in this paper that the transmission of monetary policy shocks across open economies can not routinely be generalized to countries. Overall, the evidence presented in this research is not supportive of Mundell hypothesis across countries. The implication is that the actions of domestic economic policy authorities can not be treated as unresponsive to the environments which they face, but must be modeled together with the rest of the economy.

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