Robert Mundell, 1932–2021: Ahead of His Time
Published: June 2021
Mundell pioneered the theory that serves as the basis for the design and implementation of economic policies in open economies. The launch of the euro was based on his work on “optimum currency areas”, and the late-twentieth century US economic boom was based on his theories about the optimum policy mix and the supply-side economics adopted by the Reagan administration. He always advocated fixed exchange rates and, by extension, the common European currency, believing that monetary independence is both unnecessary and undesirable. In a debate with Milton Friedman, he argued that exchange rate flexibility is no substitute for price flexibility: Even in the best circumstances, the adjustment process works by raising prices and undermining monetary stability. Mundell argued that monetary and fiscal policies should not target the same objective (full employment): one should target price stability (tight monetary policy) and the other growth (expansionary fiscal policy). Mundell’s theories are included in all economics textbooks. His colleagues have described him as “the brightest mind in our profession.” His contribution to economic theory and policymaking was recognized with the award of the Nobel Prize in economics in 1999.