Topic
Trilemma
About: Trilemma is a research topic. Over the lifetime, 620 publications have been published within this topic receiving 13216 citations.
Papers published on a yearly basis
Papers
TL;DR: In this paper, the authors argue that the global financial cycle is not aligned with countries' specific macroeconomic conditions and propose a convex combination of targeted capital control, macroprudential control, and stricter limit on leverage for all financial intermediaries.
Abstract: There is a global financial cycle in capital flows, asset prices and in credit growth. This cycle co‐moves with the VIX, a measure of uncertainty and risk aversion of the markets. Asset markets in countries with more credit inflows are more sensitive to the global cycle. The global financial cycle is not aligned with countries’ specific macroeconomic conditions. Symp toms can go from benign to large asset price bubbles and excess credit creation, which are among the best predictors of financial crises. A VAR analysis suggests that one of the determinants of the global financial cycle is monetary policy in the centre country , which affects leverage of global banks, capital flows and credit growth in the international financial system. Whenever capital is freely mobile, the global financial cycle constrains national monetary policies regardless of the exchange rate regime. For the past few decades, international macroeconomics has postulated the “trilemma”: with free capital mobility, inde pendent monetary policies are feasible if and only if exchange rates are floating. The global financial cycle transforms the trilemma into a “dilemma” or an “irreconcilable duo”: independent monetary policies are possible if and only if the capital account is managed. So should policy restrict capital mobility? Gains to international capital flows have proved elusive whether in calibrated models or in the data. Large gross flows disrupt asset markets and financial intermediation, so the costs may be very large. To deal with the global financial cycle and the “dilemma”, we have the following policy options: ( a) targeted capital controls; (b) acting on one of the sources of the financial cyc le itself, the monetary policy of the Fed and other main central banks; (c) acting on the transmission channel cyclically by limiting credit growth and leverage during the upturn of the cycle, using national macroprudential policies; (d) acting on the transmission channel structurally by imposing stricter limit s on leverage for all financial intermediaries. We argue for a convex combination of (a), (c) and (d).
2,283 citations
TL;DR: In this article, the authors classify countries as pegged or non-pegged and examine whether a pegged country must follow the interest rate changes in the base country more than nonpegs.
Abstract: To investigate how a fixed exchange rate affects monetary policy, this paper classifies countries as pegged or nonpegged and examines whether a pegged country must follow the interest rate changes in the base country. Despite recent research which hints that all countries, not just pegged countries, lack monetary freedom, the evidence shows that pegs follow base country interest rates more than nonpegs. This study uses actual behavior, not declared status, for regime classification; expands the sample including base currencies other than the dollar; examines the impact of capital controls, as well as other control variables; considers the time series properties of the data carefully; and uses cointegration and other levels-relationship analysis to provide additional insights.
961 citations
TL;DR: This article presented an analysis of the post-industrial economy from a political economy perspective and identified a set of specific specific distributional trade-offs associated with the new role played by the services sector as the chief source of employment growth in advanced democracies over the last three decades.
Abstract: This article presents an analysis of the postindustrial economy from
a political economy perspective. It identifies a set of specific
distributional trade-offs associated with the new role played by the
services sector as the chief source of employment growth in
advanced democracies over the last three decades. It is argued that
three core policy objectives--budgetary restraint, wage equality, and
expansion of employment--constitute a political "trilemma" that
allows only two of the goals to be successfully pursued at the
same time. Using a combination of statistical and case-oriented
analysis, the authors demonstrate the political and economic
salience of the trilemma, the distributional tensions inherent in each
strategy to cope with it, and the political-institutional constraints
under which these strategies are chosen.
960 citations
TL;DR: This article studied the coherence of international interest rates over more than 130 years and found that the constraints implied by the monetary policy trilemma are largely borne out by history, and that under the modern float there could be limited monetary autonomy; others, that even under the classical gold standard domestic monetary autonomy was considerable.
Abstract: 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.
732 citations
TL;DR: In this paper, the authors suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets and suggest that the size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks.
Abstract: The rapid growth of international reserves, a development concentrated in the emerging markets, remains a puzzle. In this paper, we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt.
704 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2026 | 1 |
| 2025 | 88 |
| 2024 | 79 |
| 2023 | 87 |
| 2022 | 96 |
| 2021 | 40 |