The Impossible Trinity (aka The Policy Trilemma)
AbstractThe policy Trilemma (the ability to accomplish only two out of three policy objectives â€“financial integration, exchange rate stability and monetary autonomy) continues to be a validmacroeconomic framework. The financial globalization during 1990s-2000s reduced theweighted average of exchange rate stability and monetary autonomy. An unintendedconsequence of financial globalization has been the growing exposure of developing countries tocostly capital flights and deleveraging crises. Emerging Markets responded by adding financialstabilityto the three Trilemma policy goals, coupling their growing financial integration withlarge hoarding of international reserves, as means of self-insuring their growing exposure tofinancial-turbulences.
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Bibliographic InfoPaper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt9k29n6qn.
Date of creation: 15 May 2010
Date of revision:
Social and Behavioral Sciences; Capital Controls; Deleveraging; Exchange-rate flexibility; Exchange-rate regimes; Impossible Trinity; International Reserves; Policy Trilemma; Financial Crises; Monetary independence; Self-insurance; Financial Integration;
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