The Trilemma in History: Trade-offs Among Exchange Rates, Monetary Policies and Capital Mobility
University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Dartmouth College - Department of Economics; Georgetown University - Department of Strategy/Economics/Ethics/Public Policy
Alan M. Taylor
University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 4352
The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark trade-off 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.
Number of Pages in PDF File: 45
Keywords: Trilemma, exchange rates, monetary policy
JEL Classification: F33, F41, F42working papers series
Date posted: May 18, 2004
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