IDEAS home Printed from https://ideas.repec.org/p/ris/adbiwp/0319.html
   My bibliography  Save this paper

The Impossible Trinity and Capital Flows in East Asia

Author

Listed:
  • Grenville, Stephen

    (Asian Development Bank Institute)

Abstract

While the initial certainty and stark simplicity of the Impossible Trinity have fuzzed and softened over time, this idea still holds a powerful sway over analysis of exchange rates and in the policy debate on capital flows. Yet the practical evidence suggests that the constraints on policy implicit in this doctrine are greatly exaggerated. This disconnect between the analysis and the practical world seems a major limitation on developing suitable policies for addressing the very real problems which large volatile capital flows are causing emerging countries. The Impossible Trinity argument has been an unhelpful element in developing an effective policy framework to address these foreign capital inflows.

Suggested Citation

  • Grenville, Stephen, 2011. "The Impossible Trinity and Capital Flows in East Asia," ADBI Working Papers 319, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0319
    as

    Download full text from publisher

    File URL: http://www.adbi.org/files/2011.11.07.wp319.impossible.trinity.capital.flows.east.asia.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michele Cavallo, 2006. "Interest rates, carry trades, and exchange rate movements," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov17.
    2. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2011. "Surfing the waves of globalization: Asia and financial globalization in the context of the trilemma," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 290-320, September.
    3. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
    4. John Williamson, 2009. "Exchange Rate Economics," Open Economies Review, Springer, vol. 20(1), pages 123-146, February.
    5. 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.
    6. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, vol. 3(2), pages 123-192, June.
    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. Grenville, Stephen, 2012. "Rethinking Capital Flows for Emerging East Asia," ADBI Working Papers 362, Asian Development Bank Institute.
    2. Satya Prasad Padhi, 2024. "Indian Experience of Managing Impossible Trinity, Growth and Possible Tradeoff Between FDI and FIIs: Nature of Capital Inflows Matter," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(1), pages 44-63, January.
    3. Vuong, Quan-Hoang, 2017. "The Vietnamese financial economy: reforms and development, 1986-2016," OSF Preprints g7e6t, Center for Open Science.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feijó, Carmem Aparecida & Araújo, Eliane & Nassif, André, 2017. "A structuralist-Keynesian model for determining the optimum real exchange rate for Brazil’s economic development process: 1999-2015," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    2. André Nassif & Carmem Feijó & Marco Antônio Silveira De Almeida, 2011. "Why Does Real Exchange Rate Overvalue Inbrazil? Theoretical Determinants, Empirical Evidence And Economicpolicy Dilemmas," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 237, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Andre Nassif & Carmem Aparecida Feijo & Eliane Araújo, 2016. "Structural change, catching up and falling behind in the BRICS: A comparative analysis based on trade pattern and Thirlwall’s Law," PSL Quarterly Review, Economia civile, vol. 69(279), pages 373-421.
    4. Ferdinand Owoundi & Jacques Landry Bikai, 2021. "On the neutrality of the exchange rate regime regarding real misalignments: Evidence from sub‐Saharan Africa," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 327-345, July.
    5. Seghezza, Elena & Morelli, Pierluigi & Pittaluga, Giovanni B., 2017. "Reserve accumulation and exchange rate policy in China: The authoritarian elite's aim of political survival," European Journal of Political Economy, Elsevier, vol. 46(C), pages 40-51.
    6. Marcos Rocha & Paulo Gala, 2011. "Câmbio real, poupança doméstica e poupança externa: análise teórica e evidências empíricas [Real exchange rate, domestic savings and external savings: theoretical analysis and empirical evidence]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 21(3), pages 351-367, September.
    7. Mbaye, Samba, 2012. "Currency Undervaluation and Growth: Is there a Productivity Channel?," MPRA Paper 44261, University Library of Munich, Germany.
    8. Ansgar Belke & Ulrich Volz, 2020. "The Yen Exchange Rate and the Hollowing Out of the Japanese Industry," Open Economies Review, Springer, vol. 31(2), pages 371-406, April.
    9. Nassif, André & Morandi, Lucilene & Araújo, Eliane & Feijó, Carmem, 2020. "Economic development and stagnation in Brazil (1950–2011)," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 1-15.
    10. Bresser-Pereira, Luiz Carlos & Feijó, Carmem & Araújo, Eliane Cristina, 2025. "The determination of the exchange rate: A new-developmental approach," Structural Change and Economic Dynamics, Elsevier, vol. 72(C), pages 245-255.
    11. James Dzansi, 2013. "Do remittance inflows promote manufacturing growth?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(1), pages 89-111, August.
    12. Mirjana Gligorić, 2011. "Exchange Rate Policy, Growth, And Foreign Trade In China," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 56(190), pages 103-139, July – Se.
    13. Spronk, Richard & Verschoor, Willem F.C. & Zwinkels, Remco C.J., 2013. "Carry trade and foreign exchange rate puzzles," European Economic Review, Elsevier, vol. 60(C), pages 17-31.
    14. Aizenman, Joshua & Ito, Hiro, 2014. "Living with the trilemma constraint: Relative trilemma policy divergence, crises, and output losses for developing countries," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 28-51.
    15. Kuttner, Kenneth N & Posen, Adam S, 2001. "Beyond Bipolar: A Three-Dimensional Assessment of Monetary Frameworks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 369-387, October.
    16. Stahler Kevin & Subramanian Arvind, 2014. "Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework," Journal of Globalization and Development, De Gruyter, vol. 5(2), pages 129-176, December.
    17. Naved Hamid & Azka Sarosh Mir, 2017. "Exchange Rate Management and Economic Growth: A Brewing Crisis in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 22(Special E), pages 73-110, September.
    18. Nicolás Magud & Sebastián Sosa, 2013. "When And Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease And Growth," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1-27.
    19. Joshua Aizenman & Hiro Ito, 2014. "The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia," Asian Development Review, MIT Press, vol. 31(2), pages 21-54, September.
    20. Christopher Loewald, 2021. "Macro works a decisiontree approach to exchange rate policy," Working Papers 11009, South African Reserve Bank.

    More about this item

    Keywords

    impossible trinity; exchange rates; capital flows; emerging economies;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ris:adbiwp:0319. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ADB Institute (email available below). General contact details of provider: https://edirc.repec.org/data/adbinjp.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.