The Mundellian Trilemma and Optimal Monetary Policy in a World of High Capital Mobility

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dc.contributor.authorFroyen RT
dc.contributor.authorGuender, Alfred
dc.date.accessioned2023-07-28T02:54:00Z
dc.date.available2023-07-28T02:54:00Z
dc.date.issued2021en
dc.date.updated2022-07-22T02:48:47Z
dc.description.abstractThis 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 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. We show that macroprudential policy in the form of an interest equalization tax, enhances the ability of an optimizing central bank to effectively stabilize domestic output and inflation in the presence of policy changes abroad and potentially destabilizing capital flows.en
dc.identifier.citationGuender A, Froyen RT (2021). The Mundellian Trilemma and Optimal Monetary Policy in a World of High Capital Mobility. Australian National University. Canberra.en
dc.identifier.urihttps://hdl.handle.net/10092/105833
dc.language.isoenen
dc.publisherAustralian National Universityen
dc.rightsAll rights reserved unless otherwise stateden
dc.rights.urihttp://hdl.handle.net/10092/17651en
dc.subjectMundellian Trilemmaen
dc.subjectpolicy independenceen
dc.subjectcapital mobilityen
dc.subjectinstrument shortageen
dc.subjectcapital Controlsen
dc.subject.anzsrcFields of Research::38 - Economicsen
dc.titleThe Mundellian Trilemma and Optimal Monetary Policy in a World of High Capital Mobilityen
dc.typeDiscussion / Working Papersen
uc.collegeUC Business School
uc.departmentDepartment of Economics and Finance
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