Emerging Asia’s Version of the Mundell-Fleming Model

Abstract

This paper explains the Mundell-Fleming model in the context of Emerging Asia economies management of capital mobility. Central Banks and Financial Regulators in Emerging Asia adopt a modified version of the model that incorporates two vital levers, a policy driven and a market driven method that is adaptable to the magnitude of capital flow. A policy combination mix of both policy and market driven provides smooth monetary policy signal transmission to exchange rates.