The Impacts of Crises on the Trilemma Configurations
Joshua Aizenman,
Menzie Chinn and
Hiro Ito
No 30406, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
The “monetary trilemma” – the hypothesis that full monetary policy autonomy, exchange rate stability, and financial openness cannot simultaneously be achieved – has long been studied. Recently, holding international reserves (IR) has become an important policy instrument, insuring against liquidity shortages. We find that countries’ policy mixes are diverse, and have varied over time, sometimes in response to crises. We illustrate how the policy combinations changed drastically after the Asian Financial Crisis (AFC). In contrast, the Global Financial Crisis did not lead to a drastic change in the policy arrangements. We find that countries that faced large terms of trade shocks or negative economic growth during the crisis increased IR holding, post-AFC. Countries that had negative growth during the crisis also tended to pursue greater exchange rate flexibility and financial openness. This finding is true for commodity, but not manufactured goods, exporters. Countries with large current account deficits tend to be more sensitive to economic growth at the time of the AFC. Countries that are under IMF stabilization programs or those with sovereign wealth funds tended to hold more IR. In general, countries increased their IR holdings after the GFC, but did not otherwise respond concurrently to crisis conditions.
JEL-codes: F33 F38 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm and nep-sea
Note: IFM
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.nber.org/papers/w30406.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:30406
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30406
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().