Friday , September 17 2021
Home / Econbrowser - James Hamilton / Trilemma Indices Updated

Trilemma Indices Updated

Summary:
The International Trilemma — sometimes called the Impossible Trinity — is the proposition that a country cannot pursue simultaneously full capital mobility, full exchange rate stability, and full monetary autonomy. Source: Ito (2021). In a series of papers Joshua Aizenman, Hiro Ito and I calculated indices to measure each of these dimensions, and evaluated the implications of the choices countries made ( [ACI2010]  [ACI2011] [ACI2016] [ACI2017] [ACI2020]). These indices have just been updated (website here), to 2020 for “monetary independence” and “exchange rate stability” and to 2019 for financial openness (as described in this post). In the following graphs, you can see the evolution of the choices that groups of countries — industrial (IDC), emerging market (EMG) and non-emerging

Topics:
Menzie Chinn considers the following as important:

This could be interesting, too:

Menzie Chinn writes Guest Contribution: “Is policy effective at promoting the international role of the renminbi?”

Menzie Chinn writes “Do Central Banks Rebalance Their Currency Shares?”

Menzie Chinn writes Chinn-Ito Financial Openness Index, Updated to 2019

Menzie Chinn writes Guest Contribution: “The G20 agenda in the pandemic’s year 2”

The International Trilemma — sometimes called the Impossible Trinity — is the proposition that a country cannot pursue simultaneously full capital mobility, full exchange rate stability, and full monetary autonomy.

Trilemma Indices Updated

Source: Ito (2021).

In a series of papers Joshua Aizenman, Hiro Ito and I calculated indices to measure each of these dimensions, and evaluated the implications of the choices countries made ( [ACI2010]  [ACI2011] [ACI2016] [ACI2017] [ACI2020]). These indices have just been updated (website here), to 2020 for “monetary independence” and “exchange rate stability” and to 2019 for financial openness (as described in this post).

In the following graphs, you can see the evolution of the choices that groups of countries — industrial (IDC), emerging market (EMG) and non-emerging market less developed countries (non-EMG LDC) — made in the aggregate.

Trilemma Indices Updated

Source: Ito (2021).

Trilemma Indices Updated

Source: Ito (2021).

Trilemma Indices Updated

Source: Ito (2021).

The data are freely available here.

There are other ways to measure the dimensions of the trilemma; see Klein and Shambaugh here, Obstfeld, Shambaugh and Taylor here (among many others).

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Leave a Reply

Your email address will not be published. Required fields are marked *