- Title
- An application of the Mundell Fleming model in emerging market economies
- Creator
- Tenderere, Morris
- Subject
- Macroeconomics
- Subject
- Foreign exchange rates
- Subject
- International economic relations
- Date Issued
- 2023-12
- Date
- 2023-12
- Type
- Doctoral theses
- Type
- text
- Identifier
- http://hdl.handle.net/10948/66039
- Identifier
- vital:74319
- Description
- The core objective of this study was to test the applicability of the Mundell-Fleming model in emerging market economies. Despite its importance, no study has examined the applicability of the Mundell-Fleming model in emerging market economies, as far as this study is aware. The Mundell-Fleming model predicts that in an environment with freely floating exchange rates, a drop in interest rates will lead to capital flight, which in turn will result in a fall in the exchange rate and a rise in net exports. The model takes into account both the international flow of capital and the flow of goods and services that might have a big impact on the country. The model's theoretical foundations offer practical instruments for assessing the impact of economic policy in light of the adopted exchange rate regimes of a nation. The model plays a key role in anticipating the link between output, interest rates, and exchange rates. A quantitative approach using panel monthly data over the period 2000 to 2017 for five emerging countries was carried out. Brazil, Malaysia, China, India, and South Africa were the considered countries due to availability of data. The Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS) were used to analyse the data. The study confirmed the applicability of the Mundell-Fleming model in the studied countries given a positive relationship between interest rate and portfolio investment. This result means that when interest rates rise, capital flows also increase. In addition, the confirmation of Mundell-Fleming model is reflected in the negative relationship between portfolio investment and the rate of exchange. The Mundell-Fleming model describes how movement of capital and exchange rates behave. The study recommended that to ease the threat of currency appreciation, the Central Banks in merging market economies must ensure that the domestic interest rate is always in line with the world interest rate. This will promote exchange rate stability and whenever there is an appreciation/depreciation the Central Banks must use interest rates to bring back the exchange rate to the desired rate. In emerging market economies, the reserve banks must employ what is referred to as the "sterilization" of capital flows to lessen the threat of currency appreciation. The local component of the monetary base (bank reserves plus currency) is decreased in a successful sterilization operation to counteract the reserve influx, at least temporarily.
- Description
- Thesis (PhD) -- Faculty of Business and Economic Sciences, School of Economics, Development and Tourism, 2023
- Format
- computer
- Format
- online resource
- Format
- application/pdf
- Format
- 1 online resource (xi, 135 pages)
- Format
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- Nelson Mandela University
- Rights
- All Rights Reserved
- Rights
- Open Access
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | Tenderere, M.pdf | 2 MB | Adobe Acrobat PDF | View Details Download |