The 'Impossible Trinity' Hypothesis in an Era of Global Imbalances: Measurement and Testing

12 Pages Posted: 16 Jul 2013

See all articles by Joshua Aizenman

Joshua Aizenman

National Bureau of Economic Research (NBER)

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Hiro Ito

Portland State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2013

Abstract

We outline new metrics for measuring the trilemma aspects: exchange rate flexibility, monetary independence, and capital account openness, taking into account substantial international reserve accumulation that has taken place since the 2000s. Since 1990, the trilemma variables in emerging markets have converged towards intermediate levels, characterizing by managed flexibility, using sizable international reserves as a buffer while retaining some degree of monetary autonomy. We test the linearity of the trilemma, and find that the weighted sum of the three trilemma variables adds up to a constant. Thus, a rise in one trilemma variable should be traded‐off with a drop of the weighted sum of the other two.

Suggested Citation

Aizenman, Joshua and Chinn, Menzie David and Ito, Hiro, The 'Impossible Trinity' Hypothesis in an Era of Global Imbalances: Measurement and Testing (August 2013). Review of International Economics, Vol. 21, Issue 3, pp. 447-458, 2013. Available at SSRN: https://ssrn.com/abstract=2294289 or http://dx.doi.org/10.1111/roie.12047

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
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608-262-7397 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Hiro Ito

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)

HOME PAGE: www.econ.pdx.edu

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