“Impossible Trinity” Hypothesis: The causal Relation between Trilemma and Macro Policy Performance

Weiyang Zhai

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates how trilemma policy and economic performance mutually affected each other in developing and emerging countries between 1990 and 2017. We find that higher capital openness lowers output volatility and the inflation rate. However, trilemma policy decisions are also affected by economic performance. Under a high inflation regime, a country is pressured to reduce its financial integration by restricting its capital openness. During periods of heightened global risk and financial crisis, a country is pressured to reduce its exchange rate stability.

Keywords: financial crisis; financial liberalization; impossible trinity; trilemma policy (search for similar items in EconPapers)
JEL-codes: F15 F31 F36 O24 (search for similar items in EconPapers)
Date: 2021-11-14
New Economics Papers: this item is included in nep-cba, nep-mon, nep-opm and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:110680

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