Open-economy macroeconomists regularly invoke the policy trilemma that states that governments cannot simultaneously maintain an open capital account, a fixed exchange rate, and a domestically-oriented monetary policy. My thesis is that jurisdictions with substantial offshore activities find...

We explore the welfare consequences of the alternative monetary and exchange-rate regimes still available to the small country in open international financial markets in view of the optimum monetary policy that the large country adopts for itself. Both economies are based on nominal wage...