Trilemma stability and international macroeconomic archetypes

Helen Popper, Alex (Alexandros) Mandilaras and Graham Bird

European Economic Review, 2013, vol. 64, issue C, 181-193

Abstract: This paper uses the simple geometry of the classic, open-economy trilemma to introduce a new gauge of the stability of international macroeconomic arrangements. The new stability gauge reflects the simultaneity of a country's choices of exchange rate fixity, financial openness, and monetary sovereignty. So, the new gauge is bounded and correspondingly non-Gaussian. We use the new stability gauge in nonlinear panel estimates to examine the post-Bretton Woods period, and we find that trilemma policy stability is linked to official holdings of foreign exchange reserves in low income countries. We also find that the combination of fixed exchange rates and financial market openness is the most stable arrangement within the trilemma; and middle-income countries have less stable trilemma arrangements than either low or high-income countries. The paper also characterizes international macroeconomic arrangements in terms of their semblance to definitive policy archetypes; and, it uses the trilemma constraint to provide a new gauge of monetary sovereignty.

Keywords: Trilemma; Foreign Exchange Rate Regimes; International Reserves; Financial openness; Monetary sovereignty (search for similar items in EconPapers)
JEL-codes: C78 D72 H11 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:64:y:2013:i:c:p:181-193

DOI: 10.1016/j.euroecorev.2013.08.006

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