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Trilemma, Dilemma and Global Players

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  • Samuel Ligonnière

Abstract

This paper investigates the debate between the Mundellian trilemma and the dilemma. It focuses on the active role of the exchange rate regime. Overall, the global financial cycle magnifies the binding effect of financial openness on monetary policy autonomy, thus at the same time sharply reducing the effectiveness of the floating exchange rate regime to isolate the domestic economy against financial pressures. We provide empirical evidence that the trilemma does not morph into a dilemma. Furthermore, the sensitivity to the global financial cycle depends less on the fluctuations of these financial forces than on the presence of global investors and global banks.

Suggested Citation

  • Samuel Ligonnière, 2017. "Trilemma, Dilemma and Global Players," Working Papers 2017-15, CEPII research center.
  • Handle: RePEc:cii:cepidt:2017-15
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    More about this item

    Keywords

    Trilemma; Dilemma; Exchange-Rate Regime; Global Financial Cycle; Global Players;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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