41 Pages Posted: 10 May 2004
Date Written: March 2004
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: Suggested Citation
Obstfeld, Maurice and Shambaugh, Jay and Taylor, Alan M., The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility (March 2004). NBER Working Paper No. w10396. Available at SSRN: https://ssrn.com/abstract=522276