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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. Peter C.B. Phillips, 1986. "Regression Theory for Near-Integrated Time Series," Cowles Foundation Discussion Papers 781R, Cowles Foundation for Research in Economics, Yale University, revised Jan 1987.
  2. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188 National Bureau of Economic Research, Inc.
  3. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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  10. 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.
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  18. Maurice Obstfeld & Alan M. Taylor, 1999. "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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  25. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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  27. 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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  1. Falso trilema (para econs)
    by Javier Finkman in Exabruptos on 2010-05-14 09:24:00
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