Robert Mundell

Robert Mundell is a Canadian economist who graduated from the University of British Columbia in Vancouver. He attended MIT and was top performer in his years there. He went on to win the 1999 Nobel prize in Economics.

Among his major contributions are:

Theoretical work on Optimal Currency Areas.
Contributions to the development of the Euro
Helped start the movement known as supply-side economics.
Historical research on the operation of the gold standard in different eras.
Predicted the inflation of the 1970s.
Mundell-Fleming Model
Mundell-Tobin Effect

Table of contents

1 Work on International Monetary Flows
2 See also
3 See also
4 External link

Work on International Monetary Flows

Mundell is best known in politics for his support of tax cuts and supply side economics, however, among economists it is his work on currency areas and international exchange rates which caused him to be awarded the Nobel Prize.

In the 1960's Canada, which Mundell is a native of, floated its exchange - this caused Mundell to begin investigating the results of floating exchange rates, a phenomenon not widely seen since the 1930's "Stockholm School" successfully lobbied Sweden to leave the gold standard.

In 1962 he co-authored the Mundell-Fleming model of exchange rates, and noted that it was impossible to have both domestic autonomy, and price stability and free capital flows - that two, and only two, of these objectives could be met. The model is, in effect, an extention of the IS-LM model applied to currency rates.

According to Mundell's analysis:

Discipline under the Bretton Woods system was more due to the US Federal Reserve than to the discipline of gold.
Demand side fiscal policy would be ineffective in restraining central banks under a floating exchange rate system.
Single currency zones relied, therefore, on similar levels of price stability, where a single monetary policy would suffice for all.

His analysis lead to his conclusion that it was a disagreement between Europe and the United States over the rate of inflation, partially to finance the Vietnam war, and that Bretton Woods disintegrated because of the undervaluing of gold and the consquent monetary discipline breakdown. There is a famous point/counter-point over this issue between Mundell and Milton Friedman (See [Mundell-Friedman debate])

This work would later lead to the creation of the Euro, and his prediction that leaving the Bretton Woods system would lead to "stagflation so long as highly progressive income tax rates applied. In 1974 he advocated a drastic tax reduction and a flattening of income tax rates.

Mundell, though lionized by some conservatives has many of his harshest critics from the right: he denies the need for a fixed gold based currency or currency board - though he often recomends this as a policy in hyper-inflationary environments - and he is both a fiscal and balance of payments deficit hawk. He is well known for stating that in floating exchange rate system, expansion of the money supply can only come about through a positive balance of payments.

External link

http://www.robertmundell.net/