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Lags and the Assignment Problem: A Note

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  • Lapan, Harvey
  • Enders, Walter

Abstract

Mundell [5] has demonstrated that monetary policy should be paired with external balance and fiscal policy with internal balance. This seminal article led to a voluminous literature 1 which at­ tempted to rectify many of the problems inherent in Mundell's flow equilibrium model. Harry John­ son [2] has characterized this extension of Mun­ dell's work as having "... lent itself to almost infinite mathematical product differentiation, with little significant improvement in quality of eco­ nomic product ..." Although we do not fully agree with Harry Johnson-for there are many deficien­ cies in Mundell's model-we do believe that more can be said concerning the "Assignment Problem" in the context of Mundell's model. Specifically, we examine the effects of introducing discrete lags into the Mundell model. Part A of this note presents a generalized discrete time version of Mundell's model and shows that the "Principle of Effective Market Classification" cannot guarantee stability. Part B then examines how the presence of an out­ side lag affects the results of Part A.

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  • Lapan, Harvey & Enders, Walter, 1978. "Lags and the Assignment Problem: A Note," ISU General Staff Papers 197810010700001143, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:197810010700001143
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    1. Robert A. Mundell, 1962. "The Appropriate Use of Monetary and Fiscal Policy for Internal and External Stability," IMF Staff Papers, Palgrave Macmillan, vol. 9(1), pages 70-79, March.
    2. Levin, Jay H, 1972. "International Capital Mobility and the Assignment Problem," Oxford Economic Papers, Oxford University Press, vol. 24(1), pages 54-67, March.
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