New Measures of the Trilemma Hypothesis: Implications for Asia

Hiro Ito and Masahiro Kawai ()

No 381, ADBI Working Papers from Asian Development Bank Institute

Abstract: The authors develop a new set of indexes of exchange rate stability, monetary policy independence, and financial market openness as the metrics for the trilemma hypothesis. In their exploration, they take a different and more nuanced approach than the previous indexes developed by Aizenman, Chinn, and Ito (2008). They show that the new indexes add up to the value two, supporting the trilemma hypothesis. They locate their sample economies’ policy mixes in the famous trilemma triangle—a useful and intuitive way to illustrate the state and evolution of policy mixes. They also examine if the persistent deviation of the sum of the three indexes from the value two indicates an unsustainable policy mix and therefore needs to be corrected by economic disruptions such as economic and financial crises.

Keywords: trilemma hypothesis; trilemma triangle; exchange rate stability; monetary policy independence; financial market openness; asia (search for similar items in EconPapers)
JEL-codes: F15 F21 F31 F36 F41 O24 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-09-21
New Economics Papers: this item is included in nep-mon and nep-sea
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: New Measures of the Trilemma Hypothesis: Implications for Asia (2012)
Working Paper: New Measures of the Trilemma Hypothesis: Implications for Asia (2012)
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