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== International monetary flows == Mundell is best known in politics for his support of [[tax cut]]s and [[supply-side economics]]; however, in economics it is for his work on currency areas<ref>[http://www.policonomics.com/wp-content/uploads/A-Theory-of-Optimum-Currency-Areas.pdf A Theory of Optimum Currency Areas]{{dead link|date=December 2017 |bot=InternetArchiveBot |fix-attempted=yes }}; The American Economic Review, Vol. 51, No. 4, pp. 657–665, 1961</ref> and international [[exchange rate]]s<ref>[http://www.policonomics.com/wp-content/uploads/Capital-Mobility-and-Stabilization-Policy-under-Fixed-and-Flexible-Exchange-Rates.pdf Capital Mobility, and Stabilization Policy under Fixed and Flexible Exchange Rates]{{dead link|date=December 2017 |bot=InternetArchiveBot |fix-attempted=yes }}; Revue Canadienne d'Economique et de Science Politique, Vol. 29, No. 4, pp. 475–485, 1963</ref> that he was awarded the [[Nobel Prize in Economics|Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel]] by the Bank of Sweden ([[Sveriges Riksbank]]). Nevertheless, supply-side economics featured prominently in his Bank of Sweden prize speech. In the 1960s, Mundell's native Canada floated its exchange rate: this caused Mundell to begin investigating the results of [[floating exchange rate]]s, a phenomenon not widely seen since the 1930s "[[Stockholm school (economics)|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. According to Mundell's analysis: * Discipline under the [[Bretton Woods system]] was more due to the US [[Federal Reserve System|Federal Reserve]] than to the discipline of gold. * Demand side [[fiscal policy]] would be ineffective in restraining [[central bank]]s 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]].<ref>{{cite web |url=http://www.irpp.org/po/archive/may01/friedman.pdf |title=Mundell-Friedman debate |access-date=January 1, 2012 |url-status=dead |archive-url=https://web.archive.org/web/20120118064601/http://www.irpp.org/po/archive/may01/friedman.pdf |archive-date=January 18, 2012 |df=mdy-all }}</ref> 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|date=July 2007}} (he still often recommended this as a policy in [[hyperinflation]]ary 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. In 2000, Mundell recommended that [[Canada]] permanently tie [[Canadian dollar|its dollar]]'s value to the [[American dollar|U.S. dollar]].<ref>{{Cite news|title=Economist says tie dollar to U.S.|url=https://www.theglobeandmail.com/report-on-business/economist-says-tie-dollar-to-us/article4161769/|access-date=2020-06-29}}</ref>
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