Original scientific paper

Application of Mundell-Flemming model in conditions of Eurozone countries from fiscal perspective

Maria Vojtkova orcid.org/0000-0002-0267-0943 ; Faculty of National Economy, University of Economics, Bratislava, Slovakia
Richard Ďurech ; Faculty of National Economy, University of Economics, Bratislava, Slovakia

Abstract

The main goal of this paper is to test applicability of the Mundell-Flemming model on one of the newest members of common currency union in Europe, the Slovak republic. Basic structure of IS-LM-BP model is adjusted for specific conditions of the Eurozone, especially presence of fixed exchange rate due to common currency euro. Additionally, we model fiscal sector in more detailed way due to the fact that in case of common currency union the fiscal policy is able
to positively or negatively affect final output of the economy. Contrary to the standard model, we use short-term interest rate as a tool of monetary policy while we distinguish between exogenous part of money stock - domestic credit, and an endogenous part represented by a foreign credit.

Keywords

Mundell-Flemming model; fiscal policy; monetary policy; Eurozone

Hrčak ID:

132537

URI

https://hrcak.srce.hr/132537

Publication date:

1.6.2013.

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