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Central banks and macroeconomic policy choices: Relaxing the trilemma

Andreas Steiner ()

Journal of Banking & Finance, 2017, vol. 77, issue C, 283-299

Abstract: Macroeconomic policy choices in open economies are constrained by the trilemma according to which the objectives of exchange rate stability, monetary independence and capital mobility cannot be attained jointly. This paper shows that foreign exchange interventions provide an effective instrument to relax the trilemma. An active reserve policy allows central banks to pursue independent monetary and exchange rate policies when the capital account is liberalised.

Keywords: Macroeconomic trilemma; International reserves; Financial integration; Foreign exchange market intervention (search for similar items in EconPapers)
JEL-codes: F15 F31 F36 F41 C23 (search for similar items in EconPapers)
Date: 2017
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