In mainstream economics, the Mundell-Fleming model is central. It’s however wrong to the core!

As early as 1978, Wynne Godley in a paper “New Cambridge” Macroeconomics And Global Monetarism: Some Issues In The Conduct Of U.K. Economic Policy (with Martin Fetherston) had a model with the compensation thesis which is contrary to the neoclassical model. As per Marc Lavoie’s paper Wynne Godley’s Monetary Circuit, where he also refers to the paper, according to the compensation thesis:

central banks set a target interest rate and supply bank reserves and cash on demand. Thus, if there is an increase in the amount of foreign reserves held by the central bank on the asset side of its balance sheet, so as to keep the overnight interbank rate on target this will be compensated on the asset side of the balance sheet of the central bank by either a decrease in the size of the advances provided to domestic banks or a decrease in the amount of government securities held by the central bank. As a third possible compensatory mechanism, the central bank may instead issue central bank bills on its liability side.

Marc Lavoie and Wynne Godley, Levy Institute, 2002. Picture via Marc Lavoie’s site.