RISKS OF DISREGARDING THE INCOMPATIBLE TRINITY RULE: THE SWISS FRANC CRISIS CASE

Sorin Burnete
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Sorin Burnete: Lucian Blaga University of Sibiu

Revista Economica, 2015, vol. 67, issue 5, 47-58

Abstract: When designing economic policies, governments must take account not only of economic laws but also of certain rules of thumb. The incompatible trinity is such rule, which states that a country cannot simultaneously have a fixed exchange rate regime, mobility of foreign capital and an independent monetary policy. Traditionally, the rule has been generally observed, whether knowingly or not. The recent crisis triggered by the removal of cap on the Swiss franc is an illustrative example of what might happen if the said rule is disregarded.

Keywords: exchange rate; monetary policy; capital mobility; currency peg (search for similar items in EconPapers)
JEL-codes: E5 F3 (search for similar items in EconPapers)
Date: 2015
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