The Incompatibility Triangle

Adrian Amari?a ()
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Adrian Amari?a: Department of International Business and Economics University of Economic Studies Bucharest, România

Ovidius University Annals, Economic Sciences Series, 2016, vol. XVI, issue 1, 2-6

Abstract: Launch of the euro in the late 90s, can be interpreted as a first step towards the monetary system outlined by Mundell. Economists have noted the incompatibility of fixed exchange regime, perfect mobility of capital and the independence of monetary policy, the so-called triangle of incompatibility, which was highlighted by Robert Mundell since 1968. Tommaso Padoa - Schioppa continued his research on the harmonization and convergence required to economic policies in “Financial Europe". The author shows that the triangle is the freedom of movement of capital, the exchange rate stability and the autonomy of national monetary policies. The triangle of incompatibility stems from the fact that they can be combined in their entirety, but only two. The autonomy of monetary policy is the freedom of states to choose the appropriate monetary policy and take appropriate measures in case of recessions.

Keywords: incompatibility triangle; optimum currency area; free movement of capital; exchange rate stability; monetary policy autonomy (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 F38 F43 (search for similar items in EconPapers)
Date: 2016
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