The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration
This paper investigates how the trilemma policy mix affects economic performance in developing countries. We find that greater monetary independence can dampen output volatility, while greater exchange rate stability is associated with greater output volatility, which can be mitigated by reserve accumulation; greater monetary autonomy is associated with higher inflation, while greater exchange rate stability and greater financial openness is linked with lower inflation; pursuit of exchange rate stability can increase output volatility when financial development is at an intermediate stage. Greater financial openness, when accompanied by a high level of financial development, reduces output volatility.
Year of publication: |
2010
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Authors: | Aizenman, Joshua ; Chinn, Menzie D. ; Ito, Hiro |
Published in: |
Journal of International Money and Finance. - Elsevier, ISSN 0261-5606. - Vol. 29.2010, 4, p. 615-641
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Publisher: |
Elsevier |
Keywords: | Impossible trinity International reserves Financial liberalization Exchange rate FDI flows |
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