Working Paper: NBER ID: w10396
Authors: Maurice Obstfeld; Jay C. Shambaugh; Alan M. Taylor
Abstract: The exchange-rate regime is often seen as constrained by the monetary policy trilemma, which imposes a stark tradeoff among exchange stability, monetary independence, and capital market openness. Yet the trilemma has not gone without challenge. Some (e.g., Calvo and Reinhart 2001, 2002) argue that under the modern float there could be limited monetary autonomy. Others (e.g., Bordo and Flandreau 2003), that even under the classical gold standard domestic monetary autonomy was considerable. This paper studies the coherence of international interest rates over more than 130 years. The constraints implied by the trilemma are largely borne out by history.
Keywords: No keywords provided
JEL Codes: F33; F41; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trilemma constraints (D10) | monetary policy effectiveness (E52) |
| exchange rate regimes (F33) | local interest rates (E43) |
| exchange rate regimes (F33) | divergence from world interest rate (E43) |
| fixed exchange rates (F31) | domestic interest rates (E43) |
| capital controls (F38) | relationship between local and base interest rates (E43) |
| post-Bretton Woods era (F33) | interest rate transmission among fixed-rate countries (E43) |
| non-pegged countries (F31) | monetary independence (E49) |
| exchange rate regimes (F33) | monetary policy autonomy (E58) |