Rey has claimed that the global financial cycle constrains the ability of policymakers to affect domestic conditions regardless of the exchange rate regime. In this recent lecture she talks about “the Global Financial Cycle, the Mundellian trilemma, the exorbitant privilege and exorbitant duty and the New Triffin Dilemma”. She argues that in order to deal with the Global Financial Cycle and the trilemma we need monetary and fiscal policy coordination and macro-prudential policies.
The Global Financial System, the Real Rate of Interest and a Long History of Boom-Bust Cycles
Author: Hélène Rey
From: London Business School
Obstfeld and al. examine the impact of the trilemma on 40 emerging market countries over the period of 1986-2013. They find that the choice of exchange rate regime does affect the sensitivity of domestic financial variables, such as domestic credit, house prices and bank leverage, to global conditions. As such, global financial shocks are magnified under fixed exchange rate regimes.
A Tie That Binds : Revisiting the Trilemma in Emerging Market Economies
Authors: Maurice Obstfeld, Jonathan David Ostry, Mahvash S Qureshi
From: IMF
Cecchetti and Schoenholtz ask to which of the trilemma’s long-run equilibria are we headed: “Will we go to one that preserves or further expands the already high level of integration? Or, will we go to one in which regulators and intermediaries withdraw further behind national boundaries to ensure stability?” The current mix of international integration and national regulation can only create the conditions for further financial disruptions.
The Other Trilemma: Governing Global Finance
Authors:Stephen G. Cecchetti, Kermit L. Schoenholtz
From: Brandeis University – New York University
