The ‘Trilemma’ Hypothesis and Policy Implications for Fiji

21 Pages Posted: 1 Jun 2016

See all articles by Hyeon‐Seung Huh

Hyeon‐Seung Huh

Yonsei University - Department of Economics

Philip Ji

Dongguk University

Cyn-Young Park

Asian Development Bank

Date Written: May 2016

Abstract

This paper examines the trilemma constraint for Fiji; that is, we investigate how trilemma policy variables were used to address policy trade‐offs among the three objectives of exchange rate stability, monetary autonomy, and financial openness. Fiji makes an interesting case because of its policy orientation towards a stable exchange rate and adequate foreign reserves. Our results suggest that the trilemma constraint is binding for Fiji and policy priority is given to exchange rate stability and monetary policy independence, while less emphasis is placed on financial market openness. We also find that the actual policy levels do not deviate substantially from optimal levels, which evidences that Fiji's policy management has been efficient under the trilemma constraint. Finally, we also study the effects of various trilemma policy combinations and foreign reserve holdings on output growth and inflation.

Keywords: exchange rate, Fiji, financial openness, trilemma constraint, monetary policy

Suggested Citation

Huh, Hyeon-Seung and Ji, Philip and Park, Cyn-Young, The ‘Trilemma’ Hypothesis and Policy Implications for Fiji (May 2016). Asian‐Pacific Economic Literature, Vol. 30, Issue 1, pp. 99-119, 2016, Available at SSRN: https://ssrn.com/abstract=2787404 or http://dx.doi.org/10.1111/apel.12136

Hyeon-Seung Huh (Contact Author)

Yonsei University - Department of Economics ( email )

50 Yonsei-Ro
Seoul, 120-749
Korea

Philip Ji

Dongguk University ( email )

Seoul
Korea, Republic of (South Korea)

Cyn-Young Park

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines
(632) 632-5473 (Phone)

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