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Trilemma Stability and International Macroeconomic Archetypes in Developing Economies

Author

Listed:
  • Helen Popper

    (Santa Clara University)

  • Alex Mandilaras

    (University of Surrey)

  • Graham Bird

    (University of Surrey)

Abstract

In this paper, we examine the stability of international macroeconomic policies of developing countries in the post-Bretton Woods period. We use the simple geometry of the classic, open-economy trilemma to construct a new, univariate measure of inter- national macroeconomic policy stability, and to characterize international macroeconomic arrangements in terms of their semblance to definitive policy archetypes; and, we use the trilemma constraint to provide a new gauge of monetary sovereignty. Using these measures, we find that the greatest international macroeconomic stability among developing economies exists where there are capital controls and limited exchange rate flexibility. The least stable policies occur in the economies with flexible exchange rates and open financial markets. We also find that official holdings of foreign exchange re- serves seem to be weakly linked to greater policy stability, and their link is further weakened where financial markets are open.

Suggested Citation

  • Helen Popper & Alex Mandilaras & Graham Bird, 2011. "Trilemma Stability and International Macroeconomic Archetypes in Developing Economies," School of Economics Discussion Papers 0311, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:0311
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    References listed on IDEAS

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    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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    3. Caroline Duburcq & Eric Girardin, 2010. "Domestic and external factors in interest rate determination: the minor role of the exchange rate regime," Economics Bulletin, AccessEcon, vol. 30(1), pages 624-635.
    4. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2010. "The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 615-641, June.
    5. 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.
    6. John C. Bluedorn & Christopher Bowdler, 2010. "The Empirics of International Monetary Transmission: Identification and the Impossible Trinity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 679-713, June.
    7. repec:ebl:ecbull:v:30:y:2010:i:1:p:624-635 is not listed on IDEAS
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    Cited by:

    1. Steiner, Andreas, 2013. "The accumulation of foreign exchange by central banks: Fear of capital mobility?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 409-427.
    2. Aizenman, Joshua & Ito, Hiro, 2012. "Trilemma policy convergence patterns and output volatility," The North American Journal of Economics and Finance, Elsevier, vol. 23(3), pages 269-285.
    3. Layal Mansour, 2014. "The Power of International Reserves: the impossible trinity becomes possible," Working Papers halshs-01054614, HAL.
    4. Yashvir Algu & Kenneth Creamer, 2017. "Evaluating South Africa's Open Economy," South African Journal of Economics, Economic Society of South Africa, vol. 85(2), pages 196-221, June.
    5. Krasnova Iryna V., 2016. "The Nature and Structural Regularities of Financial Integration in the Global Dimension in the Context of “Impossible Trinityâ€," The Problems of Economy, RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE), issue 4, pages 205-212.
    6. Bird, Graham & Mandilaras, Alex & Popper, Helen, 2012. "Is there a Beijing Consensus on International Macroeconomic Policy?," World Development, Elsevier, vol. 40(10), pages 1933-1943.

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    More about this item

    Keywords

    Trilemma; Foreign Exchange Rate Regimes; International Reserves; Financial Openness; Fear of Floating; Monetary Sovereignty;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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