The Impossible Trinity and Capital Flows in East Asia
22 Pages Posted: 7 Nov 2011 Last revised: 21 Nov 2011
Date Written: November 6, 2011
Abstract
While the initial certainty and stark simplicity of the Impossible Trinity have fuzzed and softened over time, this idea still holds a powerful sway over analysis of exchange rates and in the policy debate on capital flows. Yet the practical evidence suggests that the constraints on policy implicit in this doctrine are greatly exaggerated. This disconnect between the analysis and the practical world seems a major limitation on developing suitable policies for addressing the very real problems which large volatile capital flows are causing emerging countries. The Impossible Trinity argument has been an unhelpful element in developing an effective policy framework to address these foreign capital inflows.
Keywords: impossible trinity, exchange rates, capital flows, emerging economies
JEL Classification: F21, F31, F32
Suggested Citation: Suggested Citation
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