
Contents
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8.1 Exchange Rates, Interest Rates, and the Policy TrilemmaClose 8.1 Exchange Rates, Interest Rates, and the Policy TrilemmaClose
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8.2 Literature on the Trilemma 8.2 Literature on the Trilemma
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8.3 Empirical Evidence on the Trilemma 8.3 Empirical Evidence on the Trilemma
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8.4 Conclusion 8.4 Conclusion
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8 Exchange Rate Regimes and Monetary Autonomy
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Published:November 2009
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Abstract
This chapter performs tests that answer the question regarding the theory of the policy trilemma and if predictions of this theory are often borne out in practice. The chapter also looks at the modern era experiences of certain countries for discussion on whether exchange rate pegs limit monetary autonomy. The literature on the trilemma is given a brief overview, such as the work of Bordo and MacDonald is explored, particularly how it suggests that gold standard countries were flexible in their monetary policy. Empirical evidence is then analyzed and tested and shows that the policy trilemma affects economic outcomes as well, and not simply monetary policy. In conclusion, the policy trilemma theory is an appealing theoretical framework and carries vital implications on the monetary autonomy of a country.
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