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256 CHAPTER 8. THE MUNDELL-FLEMING MODELMundell-Fleming Models Summary1. The hallmark of Mundell-Fleming models is that they assumethat goods prices are sticky. Many people think of Mundell—Fleming models synonymously with sticky-price models. Becausethere exist nominal rigidities, these models invite an assessmentof monetary (and Þscal) policy interventions underboth Þxed and ßexible exchange rates. The models also providepredictions regarding the international transmission of domesticshocks and co-movements of macroeconomic variables at homeand abroad.2. The Dornbusch version of the model exploits the slow adjustmentin the goods market combined with the instantaneous adjustmentin the asset markets to explain why the exchange rate,which is the relative price of two monies (assets), may exhibitmore volatility than the fundamentals in a deterministic andperfect foresight environment. Explaining the excess volatilityof the exchange rate is a recurring theme in internationalmacroeconomics.3. The dynamic stochastic version of the model is amenable toempirical analysis. The model provides a useful guide for doingunrestricted and structural VAR analysis.