The Mundellian trilemma and optimal monetary policy in a world of high capital mobility

Type of content
Journal Article
Thesis discipline
Degree name
Publisher
Elsevier BV
Journal Title
Journal ISSN
Volume Title
Language
en
Date
2021
Authors
Froyen RT
Guender, Alfred
Abstract

This paper proposes that the Mundellian Trilemma remains valid despite the emergence of a world financial cycle. A clear distinction must be made between monetary policy independence and insulation of an open economy’s financial system. A flexible exchange rate allows an optimizing central bank to chart an independent course but does not insulate the domestic financial sector or broader economy from foreign monetary or financial shocks. The gains from a flexible exchange rate may be considerable and vary in accordance with the mandate of the central bank. The Mundellian Trilemma highlights the acute shortage of policy instruments and resulting tradeoffs among policy goals.

Description
Citation
Froyen RT, Guender A The Mundellian trilemma and optimal monetary policy in a world of high capital mobility. SSRN Electronic Journal.
Keywords
Mundellian Trilemma, policy independence, capital mobility, instrument shortage, capital controls
Ngā upoko tukutuku/Māori subject headings
ANZSRC fields of research
Fields of Research::38 - Economics::3801 - Applied economics::380107 - Financial economics
Fields of Research::38 - Economics::3801 - Applied economics::380112 - Macroeconomics (incl. monetary and fiscal theory)
Fields of Research::35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350204 - Financial institutions (incl. banking)
Fields of Research::35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350207 - International finance
Rights
All rights reserved unless otherwise stated