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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
Jay C. Shambaugh
Alan M. Taylor

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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 (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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10396.

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Date of creation: Mar 2004
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Handle: RePEc:nbr:nberwo:10396

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  6. 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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  23. repec:rus:hseeco:181565 is not listed on IDEAS
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