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The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility

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Author Info
Maurice Obstfeld (University of California, Berkeley, NBER, and CEPR)
Jay C. Shambaugh (Dartmouth College)
Alan M. Taylor (University of California, Davis, NBER, and CEPR)

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Abstract

The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some argue that under the modern float there could be limited monetary autonomy; others, that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history. Copyright (c) 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 87 (2005)
Issue (Month): 3 (December)
Pages: 423-438
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Handle: RePEc:tpr:restat:v:87:y:2005:i:3:p:423-438

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  3. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall. [Downloadable!] (restricted)
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  4. Christopher M. Meissner, 2002. "A New World Order: Explaining the Emergence of the Classical Gold Standard," NBER Working Papers 9233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Bordo, Michael D & Flandreau, Marc, 2001. "Core, Periphery, Exchange Rate Regimes and Globalization," CEPR Discussion Papers 3077, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326. [Downloadable!]
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  10. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany. [Downloadable!]
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  11. Obstfeld, Maurice & Taylor, Alan M, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," CEPR Discussion Papers 1633, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Maurice Obstfeld & Alan M. Taylor, 2002. "Globalization and Capital Markets," NBER Working Papers 8846, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Kenneth A. Froot & Maurice Obstfeld, 1991. "Stochastic Process Switching: Some Simple Solutions," NBER Working Papers 2998, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February. [Downloadable!] (restricted)
  15. repec:rus:hseeco:181565 is not listed on IDEAS
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  21. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June. [Downloadable!] (restricted)
  22. Wu, Yangru & Zhang, Hua, 1997. " Do Interest Rates Follow Unit-Root Processes? Evidence from Cross-Maturity Treasury Bill Yields," Review of Quantitative Finance and Accounting, Springer, vol. 8(1), pages 69-81, January. [Downloadable!] (restricted)
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