Trilemma Stability and International Macroeconomic Archetypes in Developing Economies
Helen Popper,
Alex (Alexandros) Mandilaras and
Graham Bird
No 311, School of Economics Discussion Papers from School of Economics, University of Surrey
Abstract:
In this paper, we examine the stability of international macroeconomic policies of developing countries in the post-Bretton Woods period. We use the simple geometry of the classic, open-economy trilemma to construct a new, univariate measure of inter- national macroeconomic policy stability, and to characterize international macroeconomic arrangements in terms of their semblance to definitive policy archetypes; and, we use the trilemma constraint to provide a new gauge of monetary sovereignty. Using these measures, we find that the greatest international macroeconomic stability among developing economies exists where there are capital controls and limited exchange rate flexibility. The least stable policies occur in the economies with flexible exchange rates and open financial markets. We also find that official holdings of foreign exchange re- serves seem to be weakly linked to greater policy stability, and their link is further weakened where financial markets are open.
Keywords: Trilemma; Foreign Exchange Rate Regimes; International Reserves; Financial Openness; Fear of Floating; Monetary Sovereignty (search for similar items in EconPapers)
JEL-codes: F3 F4 O1 O2 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011-03
New Economics Papers: this item is included in nep-ifn and nep-mon
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Citations: View citations in EconPapers (10)
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0311
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