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The international policy trilemma in the post-Bretton Woods era

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  • Mandilaras, Alex S.
Abstract
The international macroeconomic policy trilemma suggests that despite the appeal of exchange rate stability, financial account openness and monetary sovereignty, these cannot be achieved simultaneously. Using elements of Euclidean geometry, this paper proposes a new method for testing the trilemma and finds considerable evidence in support of it. Further tests indicate that, on average, policy configurations are not on the trilemma constraint, i.e. there is a degree of ‘trilemma-ineffectiveness’, which is costly for real output growth and price inflation. It is shown that these costs are associated with limited exchange rate stability and financial account openness.

Suggested Citation

  • Mandilaras, Alex S., 2015. "The international policy trilemma in the post-Bretton Woods era," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 18-32.
    • Handle: RePEc:eee:jmacro:v:44:y:2015:i:c:p:18-32
    DOI: 10.1016/j.jmacro.2015.02.004
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    Cited by:

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    2. Michael F. Bleaney & Mo Tian & Lin Yin, 2017. "De Facto Exchange Rate Regime Classifications: An Evaluation," Open Economies Review, Springer, vol. 28(2), pages 369-382, April.
    3. Taofeek Olusola Ayinde, 2022. "Modelling macroeconomic trilemma and central bank behaviour in Nigeria: a Markov-switching approach," Economic Change and Restructuring, Springer, vol. 55(3), pages 1303-1325, August.

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    More about this item

    Keywords

    International policy trilemma; Exchange rate stability; Financial openness; Monetary sovereignty;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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