Q2. What is the key message of the trilemma?
A key message of the trilemma is instrument scarcity – policy makers face a tradeoff, where movement towards increasing the achievement of one trilemma policy goal, such as higher financial integration, induces a drop in the weighted average of the other two variables, i.e., lower exchange rate stability, lower monetary independence, or a combination of the two.
Q3. What is the main message of the trilemma?
Understanding the trilemma choices of developing countries and emerging market countries (EMG) is crucial, since they account for more than half of global GDP, and at times EMGs have grown much faster than industrialized countries.
Q4. How much of the world’s reserves are held by EMGs?
the world’s largest holder of international reserves, currently possesses approximately $2 trillion of reserves, accounting for 30% of the world’s total.
Q5. What is the way to mitigate this problem?
One way of mitigating this problem is to use the regression coefficient from a regression of the home country’s interest on the base country’s rate, while controlling for external shocks.
Q6. How long did it take for the degree of exchange rate stability to increase?
While the degree of exchange rate stability declined from the early 1970s to the early 1990s, it increased during the last fifteen years.
Q7. What are the main reasons for the increase in international reserves?
international reserves have increased rapidly since the Asian crisis of 1997-98, particularly on the part of East Asian and oil exporting countries.
Q8. What is the main argument for the trilemma?
Against the backdrop of the most severe financial crisis since the Great Depression, the issue of whether the trilemma – the hypothesis that a country can only achieve two, but not all three, goals of monetary independence, exchange rate stability and financial integration – seems rather distant.
Q9. What are the limitations of the IMF-based variables?
IMF-based variables are too aggregated to capture the subtleties of actual capital controls, that is, the direction of capital flows (i.e., inflows or outflows) as well as the type of financial transactions targeted.
Q10. What did the authors find out about the trilemma?
Using these indexes, the authors showed that the major crises – namely, the collapse of the Bretton Woods system, the debt crisis of 1982, and the Asian crisis of 1997-98 – caused structural breaks in the trilemma configuration.
Q11. What is the definition of a de jure index of capital account openness?
Since KAOPEN is based upon reported restrictions, it is necessarily a de jure index of capital account openness (in contrast to de facto measures such as those in Lane and MilesiFerretti (2006)).