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The Impossible Trinity and Capital Flows in East Asia

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  • Stephen Grenville

    (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

  • Stephen Grenville, 2011. "The Impossible Trinity and Capital Flows in East Asia," ADBI Working Papers 319, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0319
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    File URL: http://www.adbi.org/files/2011.11.07.wp319.impossible.trinity.capital.flows.east.asia.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. John Williamson, 2009. "Exchange Rate Economics," Open Economies Review, Springer, vol. 20(1), pages 123-146, February.
    6. Michele Cavallo, 2006. "Interest rates, carry trades, and exchange rate movements," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov17.
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    Cited by:

    1. Vuong, Quan-Hoang, 2017. "The Vietnamese financial economy: reforms and development, 1986-2016," OSF Preprints g7e6t, Center for Open Science.
    2. Stephen Grenville, 2012. "Rethinking Capital Flows for Emerging East Asia," ADBI Working Papers 362, Asian Development Bank Institute.
    3. 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.

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    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

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