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

By M. Obstfeld, Jay C. Shambaugh, Alan M. Taylor. Review of Economics and Statistics, 2004

767 citations recorded by the source corpus.

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 argue that under the modern float there could be limited monetary autonomy; others, 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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/622bcf1129db9e36a3b1d9278377ccaa80de31ae

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Citations in the corpus

Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold? (2017, unknown): “Obstfeld, Maurice, Jay C. Shambaugh and Alan M. Taylor (2005).”
Surfing the Waves of Globalization: Asia and Financial Globalization in the Context of the Trilemma (2010, unknown): “26 See Moreno and Spiegel (1997) for an earlier study of trilemma configurations in Singapore.”
Trilemmas and trade-offs: living with financial globalisation (2015, methodology): “…the findings of previous studies by analysing long-term nominal rates of interest.25 A first test, which is based on approaches in Shambaugh (2004), Obstfeld et al (2005) and Klein and Shambaugh (2013), investigates the average coherence between a short-term nominal interest rate and a…”
ardl: Estimating autoregressive distributed lag and equilibrium correction models (2018, unknown): “Pesaran, Shin, and Smith (2001) propose a “bounds test”, which involves comparing the values of conventional F and t statistics with pairs of critical values ( CV ).”
The Long-Run Effects of Monetary Policy (2020, result): “The iso-elastic demand for intermediate good k is given by: Ykt = ( Pkt Pt )− 1+λp λp Yt The zero profit condition for competitive final good producers implies that the aggregate price index is Pt = [∫ 1 0 P − 1 λp kt dk ]−λp Each intermediate good k is produced by a price-setting monopolist using l”
A Tie That Binds: Revisiting the Trilemma in Emerging Market Economies (2017, unknown): “We thank the editor, Yuriy Gorodnichenko; two anonymous referees; Eugenio Cerutti, Atish Ghosh, Sebnem Kalemli-Ozcan, Jun Il Kim, and Hui Tong; and participants at the ASSA 2018 Annual Meeting and the IEFSADBI Conference 2017 for helpful comments.”
The dynamics of exchange rate regimes: Fixes, floats, and flips (2008, background): “…of fixed exchange rates on trade (Klein and Shambaugh, 2006a), the limits that fixed exchange rates place on monetary autonomy (Shambaugh, 2004, and Obstfeld et al., 2005), and the effects of the exchange rate regime on the transmission of terms of trade shocks (Broda, 2004, and Edwards and…”
Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy (2015, unknown): “Obstfeld et al (2005) also demonstrate through simulations that as long as a country is allowed a small amount of exchange rate flexibility within a band, the estimated β in such an equation could be closer to 0.5.”