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Robert A. Mundell, the Columbia University professor who was awarded the Nobel Prize in economics last Wednesday, laid a foundation for his prize-winning ideas in the PhD thesis he completed at MIT in 1956 under the supervision of Professor Charles Kindleberger.
Dr. Mundell's doctoral thesis is entitled "Essays in the Theory of International Capital Markets." The Royal Swedish Academy of Sciences recognized him for his papers, "A Theory of Optimum Currency Areas" and "Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates," which he wrote in 1961 and 1963 while serving on the staff of the International Monetary Fund.
Three decades before the European Monetary Union began circulating the Euro, Dr. Mundell outlined circumstances under which it might not make sense for a nation to maintain its own currency, and created a framework for analyzing such decisions.
In "Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates" he created an economic model for policy analysis, relating currency swings and interest rates to fiscal and monetary policies. He concluded that "under a floating exchange rate, monetary policy becomes powerful and fiscal policy powerless, whereas the opposite is true when the exchange rate is fixed," the Nobel committee said.
Dr. Mundell was born in Kingston, Ontario in 1932, and the economic model of Canada was important to his work.
"In Canada, he had his laboratory," said MIT Professor Rudiger Dornbusch, who studied under Professor Mundell when he taught at the University of Chicago. Another MIT faculty member, Professor Stanley Fischer, was a faculty colleague with him at Chicago.
Dr. Mundell received the BA from the University of British Columbia in 1953. He studied at the London School of Economics and received the PhD from MIT in 1956. He was a postdoctoral fellow in political economy at the University of Chicago in 1956-57.
He taught at Stanford University and the Johns Hopkins Bologna Center of Advanced International Studies before joining the staff of the IMF in 1961. From 1966-71 he was a professor of economics at the University of Chicago and editor of the Journal of Political Economy; and from 1965-75, he was (summer) Professor of International Economics at the Graduate Institute of International Studies in Geneva, Switzerland. Dr. Mundell has taught at Columbia since 1974.
A version of this article appeared in MIT Tech Talk on October 20, 1999.