Does the Mundell-Fleming Model apply to Poland?

Abstract

Applying an extended IS-LM model to Poland, this paper finds that fiscal expansion does not raise output but causes real appreciation and that monetary expansion increases output and leads to real depreciation. Besides, a lower real interest rate, a higher real stock price or a lower expected inflation rate helps raise output; and a higher real interest rate, a higher real stock price or a lower expected inflation rate results in real appreciation. Hence, the predictions of the Mundell- Fleming model are applicable to Poland.

Keywords

• fiscal expansion
• monetary expansion
• exchange rates
• mundell-fleming model