Trilemma Stability and International Macroeconomic Archetypes in Developing Economies
AbstractIn this paper, we examine the stability of international macroeconomic policies of developing countries in the post-Bretton Woods period. We use the simple geometry of the classic, open-economy trilemma to construct a new, univariate measure of inter- national macroeconomic policy stability, and to characterize international macroeconomic arrangements in terms of their semblance to definitive policy archetypes; and, we use the trilemma constraint to provide a new gauge of monetary sovereignty. Using these measures, we find that the greatest international macroeconomic stability among developing economies exists where there are capital controls and limited exchange rate flexibility. The least stable policies occur in the economies with flexible exchange rates and open financial markets. We also find that official holdings of foreign exchange re- serves seem to be weakly linked to greater policy stability, and their link is further weakened where financial markets are open.
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Bibliographic InfoPaper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0311.
Length: 30 pages
Date of creation: Mar 2011
Date of revision:
Trilemma; Foreign Exchange Rate Regimes; International Reserves; Financial Openness; Fear of Floating; Monetary Sovereignty;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
- NEP-IFN-2011-04-09 (International Finance)
- NEP-MON-2011-04-09 (Monetary Economics)
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