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Trilemma, Dilemma and Global Players

Samuel Ligonnière

Working Papers from CEPII research center

Abstract: This paper investigates the debate between the Mundellian trilemma and the dilemma. It focuses on the active role of the exchange rate regime. Overall, the global financial cycle magnifies the binding effect of financial openness on monetary policy autonomy, thus at the same time sharply reducing the effectiveness of the floating exchange rate regime to isolate the domestic economy against financial pressures. We provide empirical evidence that the trilemma does not morph into a dilemma. Furthermore, the sensitivity to the global financial cycle depends less on the fluctuations of these financial forces than on the presence of global investors and global banks.

Keywords: Trilemma; Dilemma; Exchange-Rate Regime; Global Financial Cycle; Global Players (search for similar items in EconPapers)
JEL-codes: E52 F32 F33 F38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon
Date: 2017-08
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Handle: RePEc:cii:cepidt:2017-15