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Making hard choices: trilemmas and dilemmas of macroeconomic policy in Latin America

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  • Juan David Durán-Vanegas

Abstract

This paper tests the linearity of the Mundellian trilemma of monetary policy and empirically characterizes its structure in Colombia, Chile, Mexico and Peru. The role of credit growth is then explicitly considered in order to test the alternative hypothesis of a dilemma generated by global financial cycles in capital flows and domestic credit conditions. Results confirm the linearity of the trilemma and underline important differences regarding the weight given to these goals across countries. Evidence suggests that the trilemma morphs into a restriction with two goals (a dilemma) in episodes of high credit growth.

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  • Juan David Durán-Vanegas, 2019. "Making hard choices: trilemmas and dilemmas of macroeconomic policy in Latin America," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 22(2), pages 022-038, August.
    • Handle: RePEc:chb:bcchec:v:22:y:2019:i:2:p:022-038
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