SOAS Research Online

A Free Database of the Latest Research by SOAS Academics and PhD Students

[skip to content]

Weeks, John (2013) 'Open Economy Monetary Policy Reconsidered.' Review of Political Economy, 25 (1). pp. 57-67.

Full text not available from this repository.


The standard policy rule of the Mundell-Fleming model states that under a flexible exchange rate regime with perfectly elastic capital flows, monetary policy is effective and fiscal policy is not. The rule ignores the effect of a change in the nominal exchange rate on the domestic price level. The price level effect is noted in some textbooks, but not formally analyzed. When subjected to a rigorous analysis, the interaction of the exchange rate and the domestic price level substantially changes the standard policy rule. The logically correct statement would be, with a flexible exchange rate and perfectly elastic capital flows, the effectiveness of monetary policy depends on the marginal import propensity and the sum of the trade elasticities. Typical values for these parameters suggest that the effectiveness of monetary policy under flexible exchange rates can be low even if capital flows are perfectly elastic. Because these same parameters have the opposite effect on fiscal policy, the relative effectiveness of fiscal and monetary interventions under a flexible exchange rate is an empirical issue that cannot be determined a priori.

Item Type: Journal Article
SOAS Departments & Centres: Departments and Subunits > Department of Economics
ISSN: 09538259
DOI (Digital Object Identifier):
Date Deposited: 11 Apr 2021 08:32

Altmetric Data


Download activity - last 12 monthsShow export options
Downloads since deposit
6 month trend
6 month trend
Accesses by country - last 12 monthsShow export options
Accesses by referrer - last 12 monthsShow export options

Repository staff only

Edit Item Edit Item