The international policy trilemma in the post-Bretton Woods era

Alex (Alexandros) Mandilaras

Journal of Macroeconomics, 2015, vol. 44, issue C, 18-32

Abstract: The international macroeconomic policy trilemma suggests that despite the appeal of exchange rate stability, financial account openness and monetary sovereignty, these cannot be achieved simultaneously. Using elements of Euclidean geometry, this paper proposes a new method for testing the trilemma and finds considerable evidence in support of it. Further tests indicate that, on average, policy configurations are not on the trilemma constraint, i.e. there is a degree of ‘trilemma-ineffectiveness’, which is costly for real output growth and price inflation. It is shown that these costs are associated with limited exchange rate stability and financial account openness.

Keywords: International policy trilemma; Exchange rate stability; Financial openness; Monetary sovereignty (search for similar items in EconPapers)
JEL-codes: F33 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:44:y:2015:i:c:p:18-32

DOI: 10.1016/j.jmacro.2015.02.004

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