It's Not Clear that Mundell-Fleming Is the Right Model Here...

Not that I know what the right model is. Paul Krugman writes:

The Global Transmission of European Austerity: Some thoughts on the fiscal austerity mania now sweeping Europe: is anyone thinking seriously about how this affects the rest of the world, the US included? We do have a framework for thinking about this issue: the Mundell-Fleming model. And according to that model (does anyone still learn this stuff?), fiscal contraction in one country under floating exchange rates is in fact...