The Trilemma: An Empirical Assessment over 35 years since the 1970s
This research provides further insight of trilemma phenomenon which is defined as the impossibility for a country to achieve at the same time the triple desirable goals of stability of its exchange rate, independence of its monetary policy and freedom of its capital flows. Using three indices measuring these three variables, we prove that the trilemma relationship exists provided some extra explanatory variables are added in the econometric fixed-effect modelfs equation. Conditionality is therefore attached to the existence of the trilemma. Once these results are established we provide some additional analyses of the trilemma phenomenon. First, by introducing the concept of gperformanceh we show that certain countries are coping better than others facing the trilemma constraint. Second, by using a triangle graph representing the trilemma goals at the vertices, we analyze the tradeoff that countries have adopted over years when dealing with this problem. We manage to show graphically that, rather than positioning themselves to the vertices of this triangle, countries usually adopt positions close to one side of it. These results can therefore be understood as the choice between three gdilemmash represented by the trianglefs sides.
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: 2-1 Naka, Kunitachi City, Tokyo 186|
Web page: http://www.ier.hit-u.ac.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Maurice Obstfeld & Alan M. Taylor, 1998.
"The Great Depression as a Watershed: International Capital Mobility over the Long Run,"
in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 353-402
National Bureau of Economic Research, Inc.
- 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.
- Obstfeld, Maurice & Taylor, Alan M., 1997. "The Great Depression as a Watershed: International Capital Mobility over the Long Run," CEPR Discussion Papers 1633, C.E.P.R. Discussion Papers.
- Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 301-352.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, 1.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
NBER Working Papers
8963, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
- Alex Cukierman, 1992.
"Central Bank Strategy, Credibility, and Independence: Theory and Evidence,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262031981, June.
- Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 10, December.
- Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, 1.
- Martin Feldstein & Charles Horioka, 1979.
"Domestic Savings and International Capital Flows,"
NBER Working Papers
0310, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 2007.
"Capital Controls, Capital Flow Contractions, and Macroeconomic Vulnerability,"
NBER Working Papers
12852, National Bureau of Economic Research, Inc.
- Edwards, Sebastian, 2007. "Capital controls, capital flow contractions, and macroeconomic vulnerability," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 814-840, September.
- Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:hst:ghsdps:gd09-069. 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: (Tatsuji Makino)
If references are entirely missing, you can add them using this form.