The 'International Policy Trilemma' refers to the constraint on independent monetary policy that is forced on a country which remains open to international financial markets and simultaneously pursues an exchange rate target. This paper shows that, in a global economy with open financial...

Expansionary fiscal policies have increased significantly following the subprime crisis in 2007 and the COVID-19 crisis, leading to fiscal dominance concerns, where a growing share of monetary authorities may be forced to deviate from policy targets to accommodate fiscal policies. Meanwhile,...

In this paper we examine how monetary policy should respond to nominal exchange rates in a New Keynesian open economy model that allows for a non-trivial role for sterilised intervention. The paper develops the argument against the backdrop of the evolving policy-making environment of Asian...

Microeconomic evidence indicates a very high frequency of price adjustment in low income countries (LICs), raising the question of whether LICs may be reasonably characterized as exhibiting monetary neutrality. To address this question, we analyze a cross-country panel dataset of 79 LICs over...

The dangers of high capital flow volatility and sudden stops have led economists to promote the use of capital controls as an addition to monetary policy in emerging market economies. This paper studies the benefits of capital controls and monetary policy in an open economy with financial...

We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of...

Using a novel, high frequency dataset on capital control actions in 16 emerging market economies (EMEs) from 2001 to 2012, we provide new insights into the domestic and multilateral effects of capital controls. Increases in capital account openness reduce monetary policy autonomy and increase...

This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate...