theory ignores. Nevertheless, Dornbusch concludes that monetary policy is still effective even if it worsens a trade balance, because a monetary expansion pushes down interest rates and encourages spending. He adds that, in the short run, fiscal policy works because it raises interest rates and the velocity of money. Inferences The economic historian Charles Read has pointed out that Sir Robert Peel's economic policies in 1840s Britain closely followed the irreconcilable policies of the policy trilemma predicted by the model: (i) Fixing the value of British currency to a gold standard, with the paper pound currency freely convertible to gold. (ii) A limited banknote supply based on a fixed relationship to the gold reserve. (iii) Free movement of bullion flows from 1819 and lower import tariffs on food and raw materials from 1842 (often loosely referred to as free trade). (iv) Control of interest rates and a balanced budget in order to reduce the national debt. The loss of control of interest rates and serious economic crisis every ten years (1847, 1857, 1866) is consistent with this analysis. See also Optimum currency area Marshall–Lerner condition References Further reading (Tells the difference between the IS-LM-BP model and the Mundell–Fleming model.) Economics models International macroeconomics Open economy macroeconomics