Abstract:

One assumption of Mundell-Fleming model is that interest rate is a major, possibly the only, factor that affects the capital floating between nations. However, the market situation has always been the most influential factor when it comes to an open and international securities market, and the price of securities market is negatively related to interest rate. Based upon such facts, this paper illustrates that BP curve has a negative slope occasionally, which enriches the format of Mundell-Fleming model. The paper analyses the features of the effects of fiscal and monetary policy and the opening of China's securities market under the condition that BP curve has a negatively slope. Finally, the author discusses the impact of the financial innovations of securities market on the M-F model.

Key words: secunitics market, BP curve with a negative slope, M-F model,, financial innovation