Managing the Impossible Trinity: The Case of Malaysia

Soo Khoon Goh

MPRA Paper from University Library of Munich, Germany

Abstract: This paper discusses how Malaysia manages the impossible trinity, the conjecture that a country cannot simultaneously maintain an open capital account, an exchange rate stability and monetary policy independence. Only two out of these three goals can be mutually consistent and policy makers have to decide which third goal to give up. The paper shows how Malaysia adopts an intermediate regime -- a regime that enables policy makers to manage all the three goals simultaneously. The impact of the global financial crisis on the Malaysian economy and the policy options for Malaysia to deal with the recent huge capital outflows are discussed in this paper. The willingness by Bank Negara Malaysia to allow a certain extent of exchange rate adjustments in the face of current global crisis reflects that Malaysia is not exempted from the impossible trinity

Keywords: Impossible Trinity; Malaysia; Global Financial Crisis (search for similar items in EconPapers)
JEL-codes: F41 (search for similar items in EconPapers)
Date: 2009-08-07
New Economics Papers: this item is included in nep-dev, nep-opm and nep-sea
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