Trilemma or dilemma? Impossible trinity or impossible duality?

In a number of newspaper articles during the last weeks a paper presented at the Jackson Hole conference by Professor Hélène Rey of the London Business School is quoted that argues that global capital flows, for example driven by monetary policy  in the US or other big countries, means that even a floating exchange rate does not give a country autonomy in its monetary policy. The trilemma (or the „impossible trinity“ of fixed exchange rates, free capital flows and independent monetary policy, as it was called by Stanley Fischer and many other writers) seems to be a dilemma, which means that flexible exchange rates do not free monetary policy. As the Financial Times put it: “The choice is this: impose capital controls or let the Fed run your economy.”

Just for ease of reference for future articles on the matter, please find below an excerpt from the conclusions of a paper of mine published in 2001.

From the conclusion of:

Heiner Flassbeck: The Exchange Rate – Market Price or Economic Policy Tool, UNCTAD Discussion Paper, No. 149, 2001, p. 44ff.

“Fixing the exchange rate in one way or the other doesn’t create but only reveal the existing lack of monetary autonomy in a system of free capital and goods flows. [...]

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