IDEAS home Printed from https://ideas.repec.org/a/taf/irapec/v29y2015i1p32-64.html
   My bibliography  Save this article

Understanding the dynamics of the macroeconomic trilemma

Author

Listed:
  • Amr S. Hosny
  • N. Kundan Kishor
  • Mohsen Bahmani-Oskooee

Abstract

This paper tests the autonomy of domestic monetary policy in the context of the macroeconomic policy trilemma for a large data-set of developing and developed countries covering three different time periods characterized with different exchange rate regimes and capital controls. The existing literature uses fixed coefficient methodologies to examine monetary policy independence; whereas we show that the coefficients of interest are unstable as countries switch between different exchange rate regimes and/or capital controls over time. The contribution is in using a time-varying parameter model that better captures the effects of the heterogeneity in different exchange rate regimes and capital mobility restrictions on monetary policy independence over time, allowing a more accurate test of the macroeconomic trilemma.

Suggested Citation

  • Amr S. Hosny & N. Kundan Kishor & Mohsen Bahmani-Oskooee, 2015. "Understanding the dynamics of the macroeconomic trilemma," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 32-64, January.
  • Handle: RePEc:taf:irapec:v:29:y:2015:i:1:p:32-64
    DOI: 10.1080/02692171.2014.933788
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/02692171.2014.933788
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Robert L. Hetzel, 1999. "Japanese monetary policy: a quantity theory perspective," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-26.
    4. Tim Oliver Berg, 2013. "Cross-country evidence on the relation between stock prices and the current account," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2267-2277, June.
    5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    6. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    7. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September.
    8. Mohsen Bahmani-Oskooee & Claire Economidou & Gour Gobinda Goswami, 2005. "How sensitive are Britain's inpayments and outpayments to the value of the British pound," Journal of Economic Studies, Emerald Group Publishing, vol. 32(5), pages 455-467, October.
    9. Kim, Chang-Jin & Nelson, Charles R, 1989. "The Time-Varying-Parameter Model for Modeling Changing Conditional Variance: The Case of the Lucas Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(4), pages 433-440, October.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
    12. M Morys, 2010. "Monetary Policy under the Classical Gold Standard (1870s - 1914)," Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers 10/01, CHERRY, c/o Department of Economics, University of York.
    13. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
    14. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    15. Bahmani-Oskooee, Mohsen & Tankui, Altin, 2008. "The black market exchange rate vs. the official rate in testing PPP: Which rate fosters the adjustment process?," Economics Letters, Elsevier, vol. 99(1), pages 40-43, April.
    16. Larry D. Neal & Marc D. Weidenmier, 2003. "Crises in the Global Economy from Tulips to Today," NBER Chapters, in: Globalization in Historical Perspective, pages 473-514, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chee-Hong Law & Chee-Lip Tee & Wei-Theng Lau, 2019. "The Impacts of Financial Integration on the Linkages Between Monetary Independence and Foreign Exchange Reserves," International Economic Journal, Taylor & Francis Journals, vol. 33(2), pages 212-235, April.
    2. Köhler, Karsten, 2016. "Currency devaluations, aggregate demand, and debt dynamics in an economy with foreign currency liabilities," IPE Working Papers 78/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:irapec:v:29:y:2015:i:1:p:32-64. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: http://www.tandfonline.com/CIRA20 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.