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Test of the Impossible Trinity Hypothesis for Five Selected Countries in the Asian and Pacific Regions

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  • Yu Hsing

    ()
    (Southeastern Louisiana University)

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    Abstract

    This paper examines the functional form of the impossible trinity hypothesis for five selected countries in the Asian and Pacific regions including Australia, Japan, New Zealand, Singapore and South Korea. The linear, log-log and semi-log forms are compared. Based on the mean absolute percent error and Akaike information criterion, we find that the semi-log form on the dependent variable performs better than the other three forms. The goodness of fit is relatively high, suggesting that there is support for the impossible trinity hypothesis. These countries may adopt different policy combinations. Australia maintains a middle ground approach to all three goals. South Korea emphasizes monetary policy independence and financial market openness and allows the exchange rate of the won to fluctuate freely based on market forces.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P57.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 616-623

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    Handle: RePEc:ebl:ecbull:eb-12-00096

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    Related research

    Keywords: Impossible trinity; trilemma; exchange rate stability; monetary policy independence; financial market openness; functional form;

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    1. Joshua Aizenman & Rajeswari Sengupta, 2013. "Financial Trilemma in China and a Comparative Analysis with India," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 123-146, 05.
    2. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
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