Excess Exports

savings increase - but not within own economy, in foreign economies
- Trump: USA is deeply endebted, especially to China
  - is a problem to Trump and an argument in his campaign
foreign wealth increases with excess exports
less wealth within own economy
- leads to deterioration of country, see Deutsche Bahn

Mundell-Fleming model

Mundell-Fleming Model
assumptions:
- prices are constant, both domestic and foreign prices
- no inflation → can use nominal instead of real interest rate
- can use nominal exchange rate rather than real exchange rate
- domestic currency is only demanded within own country
  - counter example: USD in series Narcos
higher interest rate → higher exchange rate … less exports
- if my goods become more expensive via exchange rate the world will buy less
Interest Parity Condition
change in expected interest rate (and therefore exchange rate) immediately affect attractiveness of domestic assets
- expected increase in exchange rate → more attractive domestically
- expected decrease in exchange rate → less attractive domestically
- buying a 10-year bond involves a lot of expectations
changes in IS curve have no change on mundell-fleming model
- but the DD-curve still affects the net exports
  - higher Y → you are richer → more imports, less exports