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The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility

Author

Listed:
  • Maurice Obstfeld

    (Economics Department, University of California, Berkeley & NBER & CEPR)

  • Jay Shambaugh

    (Department of Economics, Dartmouth College)

  • Alan Taylor

    (Department of Economics, University of California, Davis & NBER & CEPR)

Abstract

The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some (e.g., Calvo and Reinhart 2001, 2002) argue that under the modern float there could be limited monetary autonomy. Others (e.g., Bordo and Flandreau 2003), that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history.

Suggested Citation

  • Maurice Obstfeld & Jay Shambaugh & Alan Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," International Finance 0407003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0407003
    Note: 41 pages
    as

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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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