The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration

Joshua Aizenman, Menzie D. Chinn, Hiro Ito

Research output: Contribution to journalArticlepeer-review

140 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)615-641
Number of pages27
JournalJournal of International Money and Finance
Volume29
Issue number4
DOIs
StatePublished - 1 Jun 2010
Externally publishedYes

Keywords

  • Exchange rate
  • FDI flows
  • Financial liberalization
  • Impossible trinity
  • International reserves

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