Taking into account recent substantial international reserve accumulation, the authors outline new metrics for measuring the trilemma aspects: exchange rate flexibility, monetary independence, and capital account openness. Upon testing the linearity of the trilemma, they 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.
The “Impossible Trinity” Hypothesis in an Era of Global Imbalances: Measurement and Testing
Additional Info
- Volume or issue no.: La Follette School Working Paper No. 2012-007
- Author(s): Joshua Aizenman, Menzie D. Chinn, and Hiro Ito
- Link to publication: Download PDF