Froyen RTGuender, Alfred2022-04-272022-04-272021Froyen RT, Guender A The Mundellian trilemma and optimal monetary policy in a world of high capital mobility. SSRN Electronic Journal.1556-5068https://hdl.handle.net/10092/103592This 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.enAll rights reserved unless otherwise statedMundellian Trilemmapolicy independencecapital mobilityinstrument shortagecapital controlsJournal Article2021-12-21Fields of Research::38 - Economics::3801 - Applied economics::380107 - Financial economicsFields 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 financehttp://doi.org/10.2139/ssrn.3891227