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Review of International Economics

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Monetary policy, Foreign exchange reserves, Capital market -- Econometric models, Foreign exchange


We outline new metrics for measuring the trilemma aspects: exchange rate flexibility, monetary independence, and capital account openness, taking into account recent substantial international reserve accumulation. Since 2000, the trilemma variables in emerging markets have converged towards intermediate levels, characterizing by managed flexibility, using sizable international reserves as a buffer while retaining some degree of monetary autonomy. We test the linearity of the trilemma, and find that the weighted sum of the three trilemma variables adds up to a constant. Thus, a rise in one trilemma variable should be traded-off with a drop of the weighted sum of the other two.


Authors' version of an article that subsequently appeared in the Review of International Economics, volume 21, issue 3, August 2013, pages 447-458. It may be found at Copyright © 2013 John Wiley & Sons, Inc.

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