Trilemma policy convergence patterns and output volatility

Joshua Aizenman, Hiro Ito

Research output: Contribution to journalArticlepeer-review

31 Scopus citations


We examine the development of open macroeconomic policy choices among developing economies from the perspective of the powerful " trilemma" hypothesis. We construct an index of divergence of the three trilemma policy choices, and evaluate its patterns in recent decades. We find that the three dimensions of the trilemma configurations are converging toward a " middle ground" among emerging market economies, equipped with managed exchange rate flexibility, underpinned by sizable holdings of international reserves, and intermediate levels of monetary independence and financial integration. We also find emerging market economies with more converged policy choices tend to experience smaller output volatility in the last two decades. Emerging markets with relatively low international reserves/GDP could experience higher levels of output volatility when they choose a policy combination with a greater degree of policy divergence while this heightened output volatility effect does not apply to economies with relatively high international reserves/GDP holding.

Original languageEnglish
Pages (from-to)269-285
Number of pages17
JournalNorth American Journal of Economics and Finance
Issue number3
StatePublished - 1 Dec 2012
Externally publishedYes


  • Exchange rate regime
  • F31
  • F36
  • F41
  • Financial liberalization
  • Impossible trinity
  • International reserves
  • O24

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Trilemma policy convergence patterns and output volatility'. Together they form a unique fingerprint.

Cite this