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

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  • Obstfeld, Maurice
  • Shambaugh, Jay C.
  • Taylor, Alan M.

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 (e.g., Calvo and Reinhart 2001, 2002) argue that under the modern float there could be limited monetary autonomy. Others (e.g., Bordo and Flandreau 2003), 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.

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Bibliographic Info

Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt4rq9v2rb.

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Date of creation: 01 May 2004
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Handle: RePEc:cdl:ciders:qt4rq9v2rb

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Keywords: Exchange rate; economic globalization; monetary policy; capital mobility;

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References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  2. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  3. Michael D. Bordo & Marc Flandreau, 2003. "Core, Periphery, Exchange Rate Regimes, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 417-472 National Bureau of Economic Research, Inc.
  4. 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.
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  7. 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.
  8. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September.
  9. Svensson, Lars E O, 1991. "The Term Structure of Interest Rate Differentials in a Target Zone: Theory and Swedish Data," CEPR Discussion Papers 495, C.E.P.R. Discussion Papers.
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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.
  12. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
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  27. repec:rus:hseeco:181565 is not listed on IDEAS
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Blogs review: Navigating the open economy trilemma
    by ? in Bruegel blog on 2013-10-01 08:15:34
  2. Falso trilema (para econs)
    by Javier Finkman in Exabruptos on 2010-05-14 09:24:00
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