Mundell was born Robert Alexander Mundell on October 24, 1932, in Kingston, Ontario, Canada, to Lila Teresa (née Hamilton) and William Mundell.[8][9] His mother was an heiress while his father was a military officer and taught at the Royal Military College of Canada.[10] He spent his early years in a farm in Ontario and moved to British Columbia with his family when his father retired at the end of World War II. He completed his high school education in British Columbia where he was known to have participated in boxing and chess events during this time.[10]
In the 1960s, Mundell's native Canada floated its exchange rate: this caused Mundell to begin investigating the results of floating exchange rates, a phenomenon not widely seen since the 1930s "Stockholm School" successfully lobbied Sweden to leave the gold standard.
In 1962, along with Marcus Fleming, he co-authored the Mundell–Fleming model of exchange rates, and noted that it was impossible to have domestic autonomy, fixed exchange rates, and free capital flows: no more than two of those objectives could be met. The model is, in effect, an extension of the IS/LM model applied to currency rates.
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 led 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 consequent monetary discipline breakdown. There is a famous point/counterpoint over this issue between Mundell and Milton Friedman.[18]
This work later led 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 denied the need for a fixed gold-based currency or currency board [citation needed] (he still often recommended this as a policy in hyperinflationary environments) and he was both a fiscal and balance of payments deficit hawk. He is well known for stating that in a floating exchange rate system, expansion of the money supply can come about only by a positive balance of payments.
Robert Mundell was considered the "father of the euro" for his early work encouraging a European monetary union.[6][20] Starting in the 1960s, Mundell supported the constitution of a European Economic and Monetary Union and pushed for the creation of the euro.[21]
In 2000, he predicted that before 2010, the eurozone would expand to cover 50 countries, while the U.S. dollar would spread throughout Latin America, and much of Asia would look towards the yen.[22] Such predictions have proved highly inaccurate.
In his 2012 article "Robert Mundell, evil genius of the euro", Greg Palast affirms that Mundell advocated for the euro because its implementation would have the effect of removing democratic control over monetary policy. As such, when a crisis hits, eurozone governments would not be able to stimulate the economy by creating money, as is prescribed by Keynesian economics. They would thus be forced to resort to other means to curtail unemployment, such as deregulating businesses, privatizing state industries, cutting taxes, and weakening the social safety net.[23]
In 2014, Mundell voiced his opposition to proposals of a fiscal union between the European states. He declared that "it would be insane to have a central European authority that controls all the taxes and duties of the states ... controlled in the Union. This transfer of sovereignty is far too big". He also voiced his opposition to the prospect that countries could be liable for other countries' debt.[24]
Mundell won the Nobel Memorial Prize in Economic Science in 1999 and gave as his prize lecture a speech titled "A Reconsideration of the Twentieth Century". According to the Nobel Prize Committee, he got the honour for "his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas".
Mundell concluded in that lecture that "the international monetary system depends only on the power configuration of the countries that make it up". He divided the entire twentieth century into three parts by different periods of time:
The first third of the century, from its beginning to the Great Depression of the 1930s, economics was dominated by the confrontation of the Federal Reserve System with the gold standard.
The second third of the century was from World War II to 1973, when the international monetary system was dominated by fixing the price of gold with the US dollar.
The last third of the century started with the destruction of the old monetary system due to the problem of inflation.
With the destruction of the old monetary system, a new international monetary system was finally founded. Controlling inflation by each country became a main topic during this era.
Mundell was married to Velerie Natsios-Mundell. The couple had a son and lived in Monteriggioni, Siena, Tuscany, Italy, starting the late 1970s. He had two sons and a daughter from an earlier marriage. One of his sons had predeceased him in a car accident.[9] Mundell died on April 4, 2021, from cholangiocarcinoma, a cancer of the bile duct.[38][39][40] He was aged 88.[9]
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose. The employment cost index is also used for wages in the United States.
Robert Cox Merton is an American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, known for his pioneering contributions to continuous-time finance, especially the first continuous-time option pricing model, the Black–Scholes–Merton model. In 1993 Merton co-founded hedge fund Long-Term Capital Management.
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The Bretton Woods system required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for foreign governments and central banks at US$35 per troy ounce of fine gold. It also envisioned greater cooperation among countries in order to prevent future competitive devaluations, and thus established the International Monetary Fund (IMF) to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.
The impossible trinity is a concept in international economics which states that it is impossible to have all three of the following at the same time:
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International finance is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries. International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade.
The Mundell–Fleming model, also known as the IS-LM-BoP model, is an economic model first set forth (independently) by Robert Mundell and Marcus Fleming. The model is an extension of the IS–LM model. Whereas the traditional IS-LM model deals with economy under autarky, the Mundell–Fleming model describes a small open economy.
Peter Bain Kenen was an American economist, who was the Walker Professor of Economics and International Finance at Princeton University, and senior fellow in international economics at the Council on Foreign Relations.
In economics, an optimum currency area (OCA) or optimal currency region (OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency.
Monetary hegemony is an economic and political concept in which a single state has decisive influence over the functions of the international monetary system. A monetary hegemon would need:
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The Deutsche Bank Prize in Financial Economics honors renowned researchers who have made influential contributions to the fields of finance and money and macroeconomics, and whose work has led to practical and policy-relevant results. It is awarded biannually, since 2005, by the Center for Financial Studies (CFS), in partnership with Goethe University Frankfurt, and is sponsored by Deutsche Bank Donation Fund. The award carries an endowment of €50,000, which is donated by the Stiftungsfonds Deutsche Bank im Stifterverband für die Deutsche Wissenschaft.
Currency intervention, also known as foreign exchange market intervention or currency manipulation, is a monetary policy operation. It occurs when a government or central bank buys or sells foreign currency in exchange for its own domestic currency, generally with the intention of influencing the exchange rate and trade policy.
A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another measure of value, such as gold.
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is an economics award administered by the Nobel Foundation.
The Vancouver School of Economics is a school of the University of British Columbia located in Vancouver, BC, Canada. The school ranks as one of the top 25 in the world and top in Canada. The school exhibits high research activity and offers undergraduate and graduate degrees.
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Conference on the New International Monetary System; Mundell, Robert A; Polak, J. J; Fleming, J. Marcus; International Monetary Fund; Columbia University, eds. (1977). The new international monetary system. New York: Columbia University Press. ISBN0231043686.
Mundell, Robert A (1968). International economics. New York: Macmillan. OCLC239387.
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