Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy
- (pp. 33-66)
Abstract
A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. This paper considers whether partial capital controls and limited exchange rate flexibility allow for full monetary policy autonomy. We find partial capital controls do not generally allow for greater monetary control than with open capital accounts, unless they are quite extensive, but a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies. (JEL E52, F32, F33)Citation
Klein, Michael W., and Jay C. Shambaugh. 2015. "Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy." American Economic Journal: Macroeconomics, 7 (4): 33-66. DOI: 10.1257/mac.20130237Additional Materials
JEL Classification
- E52 Monetary Policy
- F32 Current Account Adjustment; Short-term Capital Movements
- F33 International Monetary Arrangements and Institutions
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