The Dornbusch Model Flashcards
1
Q
What are the motivations of the Dornbusch Model?
A
The model is a hybrid: it has the short run features of the Mundell- Fleming Model (fixed prices) and the long run features of the monetary model (flexible prices).
This is a sticky price model: prices are fixed in the short run and become more and more flexible in the long run.
Main characteristic: Product (and Labour) markets adjust very slowly, while financial markets adjust almost instantaneously.
2
Q
What are the assumptions of the Dornbusch model?
A
AD is determined by the standard open economy IS-LM mechanism.
