Anyone have any tips on what to remember? I’m really bad at these economic theories.
I remember it this way ’ high mobility with flexible exchange, the effet of monetary and fiscal policy is contrary ’
I just decided to bail and memorize this with a mnemonic, here’s what I do:
M F H L
E E U D
E R D U
R E A U
R R U A
I simply draw this chart. I remember the first column is EERR, the next column is alternating with ERER, and then the next columns are UDAU and DUUA (I remember them from how there spelled as well as how I pronounce them). It’s silly, but it always got the job done.
Can you explian dornbusch overshooting and the other theories too?
how does this explain the therories? more info please…
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for dornbusch overshoot … just look at exhibit 2 on page 502 in the CFAi text and it’ll say temporary exchange rate undershoot … and that’s the dornbusch overshoot model.
double
thanks man. couldn’t remember it for the life of me, but now i got it. the notation isn’t hard to figure out.
Can you explain how this chart works?
Mundel Flemming
No capital restrictions - things are based on interest rates. Quant easing leads boast GDP, lowers rates, capital outflow, lower currency. Fiscal easing - gov’t borrows and spends, borrowing increases rates, capital inflows, currency appreciates. When mixing the two, think IR drive the direction of the currency.
Capital Controls - since capital flow is harder, more emphasis of currency direction is placed on GDP.
I’m going to take a stab at it:
M=Monetary policy, F=Fiscal policy, H=high capital mobility, L=low capital mobility
E=Expansionary policy
R=Restrictive policy
A=Appreciaciation
D=Depreciation
U=Unknown
So translating the first line - expansionary monetary policy and expansionary fiscal policy leads to unknown effects on the currency for high capital mobility countries, or depreciation in low capital mobility countries.