Robert M. La Follette School of Public Affairs

The “Impossible Trinity” Hypothesis in an Era of Global Imbalances: Measurement and Testing

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.

Additional Info

  • Volume or issue no.: La Follette School Working Paper No. 2012-007
  • Author(s): Joshua Aizenman, Menzie D. Chinn, and Hiro Ito