Abstract
The simplest large country IS/LM/BP model (Mundell-Fleming Model) predicts that an increase in Government spending in the US would cause an increase in Gross Domestic Product (GDP) for countries with flexible exchange rate regimes and decreases in GDP for countries with fixed exchange rate regimes. In contrast, increases in the US money supply would cause an increase in GDP for countries with fixed exchange rate regimes and decreases in GDP for countries with flexible exchange rate regimes. This paper uses a solution to the omitted variables problem of regression analysis to estimate the effects of US fiscal and monetary policy on the Republic of Korea using quarterly data. The data splits into two sections: (1) from 1962 through 1997, Korea had a fixed exchange rate regime and (2) from 1998 through 2022, Korea had a flexible exchange rate regime. The empirical results fit the Large Country IS/LM/BP predictions.
Original language | English (US) |
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Pages (from-to) | 86-106 |
Number of pages | 21 |
Journal | Journal of Economic Integration |
Volume | 39 |
Issue number | 1 |
DOIs | |
State | Published - Mar 2024 |
Keywords
- fixed versus flexible exchange rate systems
- Mundell-Fleming model
- policy coordination
- South Korea
- spill over effects
- United States
ASJC Scopus subject areas
- General Economics, Econometrics and Finance