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A macroeconomic model for a small member of a monetary union

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  • Thompson, Henry

Abstract

A small member of a monetary union faces limited macroeconomic policy options. Its money supply is tied to the trade balance by the “gold standard” exchange rate. Competitive depreciation is at union discretion. A balanced budget constraint eliminates discretionary deficit spending. The present small economy also takes the international interest rate. This paper introduces a flexible price level leading to price specie flow. An interest rate subsidy is also introduced. Fiscal policy and the interest rate subsidy may raise income subject to their tax burdens. Investment policy can affect economic growth.

Suggested Citation

  • Thompson, Henry, 2018. "A macroeconomic model for a small member of a monetary union," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 564-567.
    • Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:564-567
    DOI: 10.1016/j.iref.2017.12.010
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    References listed on IDEAS

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    1. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Fleming Model a Quarter Century Later: A Unified Exposition," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 567-620, December.
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    4. Andrew K. Rose, 2000. "A Review of Some of the Economic Contributions of Robert A. Mundell, Winner of the 1999 Nobel Memorial Prize in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(2), pages 211-222, June.
    5. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Flemming Model: A Quarter Century Later," NBER Working Papers 2321, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Helder Ferreira de Mendonça & Matheus Souza Peçanha, 2020. "Fiscal management performance and local economic development: evidence from a large emerging economy," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(3), pages 641-659, July.

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    More about this item

    Keywords

    Monetary union; Small economy; Macroeconomic policy;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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