Monetary and fiscal policy mix in the Czech Republic - Empirical verification of the principle of effective market classification

Monetary and fiscal policy should be paired with the economic objectives on which they have the most influence. The authors have applied Mundell's pri nciple of reactive market classification (EMC) to the conditions of the Cze ch economy-a small open economy with a managed floating exchange rate syste m and a high influx of foreign direct investment. Empirical verification co nfirmed the requirement of the modification of the EMC principle in the Cze ch Republic. An application of the modified model in the Czech Republic res ulted in the following recommendation for the Czech economic policy mix: mo netary policy should control the internal balance and fiscal policy the ext ernal balance.