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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

    (Economics Department, University of California, Berkeley & NBER & CEPR)

  • Jay Shambaugh

    (Department of Economics, Dartmouth College)

  • Alan Taylor

    (Department of Economics, University of California, Davis & NBER & CEPR)

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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File URL: http://128.118.178.162/eps/if/papers/0407/0407003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0407003.

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Length: 41 pages
Date of creation: 07 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0407003

Note: 41 pages
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Web page: http://128.118.178.162

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  1. Larry Neal & Marc Weidenmier, 2002. "Crises in the Global Economy from Tulips to Today: Contagion and Consequences," NBER Working Papers 9147, National Bureau of Economic Research, Inc.
  2. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
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  7. Maurice Obstfeld & Alan M. Taylor, 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," NBER Working Papers 5960, National Bureau of Economic Research, Inc.
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  23. Frankel, Jeffrey & Schmukler, Sergio & Serven, Luis, 2000. "Global transmission of interest rates : monetary independence and the currency regime," Policy Research Working Paper Series 2424, The World Bank.
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Blog mentions

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. China's Capital Controls and the Exchange Rate Regime
    by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-08-28 12:12:18
  3. Falso trilema (para econs)
    by Javier Finkman in Exabruptos on 2010-05-14 09:24:00
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