The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility

Maurice Obstfeld, Jay Shambaugh and Alan Taylor

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some (e.g., Calvo and Reinhart 2001, 2002) argue that under the modern float there could be limited monetary autonomy. Others (e.g., Bordo and Flandreau 2003), that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history.

Keywords: Exchange rate; economic globalization; monetary policy; capital mobility (search for similar items in EconPapers)
Date: 2004-05-01
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Citations: View citations in EconPapers (50)

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