A modern reincarnation of Mundell-Fleming's trilemma

Joshua Aizenman

Research output: Contribution to journalArticlepeer-review

33 Scopus citations


A modern incarnation of the trilemma is essential for understanding the evolving global financial architecture, and for coming up with ways to mitigate financial fragility. The scarcity of policy instruments relative to the policy goals implies complex country-specific tradeoffs between the policy goals. The financial crises of the 1990s induced Emerging markets to converge to trilemma's middle ground – managed exchange-rate flexibility, controlled financial integration, and viable but limited monetary independence. Capital flight crises added financial stability to trilemma's policy goals. New policies were added to deal with financial fragility associated with financial integration, including precautionary management of international reserves by emerging markets, swap lines among OECD's central banks, and macroeconomic prudential regulations. These trade-offs are impacted by a country's balance sheet exposure to hard currencies, the exchange-rate regime, and the growing sensitivity to shocks emanating from the U.S. and the Eurozone in the aftermath of the Global Financial Crisis.

Original languageEnglish
Pages (from-to)444-454
Number of pages11
JournalEconomic Modelling
StatePublished - 1 Sep 2019
Externally publishedYes


  • Balance sheet exposure
  • Debt and banking crises
  • Financial crises
  • Financial stability
  • International reserves
  • Swap lines
  • The impossible trinity

ASJC Scopus subject areas

  • Economics and Econometrics


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