Original article International Economics

THE “IMPOSSIBLE TRILEMMA” AND THE ANALYSIS OF ITS VALIDITY BY VISUALIZATION THROUGH THE USE OF ARTIFICIAL INTELLIGENCE SOFTWARE

Gancho Ganchev - South-West University "Neofit Rilski"
Elena Stavrova - South-West University "Neofit Rilski"
Vladimir Tsenkov - South-West University "Neofit Rilski"
Mariya Paskaleva - South-West University "Neofit Rilski"
Received: 02 Jun 2022
Revised:
Published:
Downloads: 0
Citations: 0
Issue 4/2020
JEL F31 F15 F41 E42
DOI https://doi.org/10.56497/etj2065402

Abstract

This research aims to visualize the "impossible trilemma", i. e. the impossibility of simultaneously having a fixed exchange rate, free movement of capital and an independent monetary policy, for every economy through the application ofartificial intelligence software. The advantages of visualization techniques are revealed. The explored countries are divided into the following panels: theEurozone countries, the developed European countries (DEC), the developed non-European countries (DNEC), the BRICS countries (Brazil, Russia, India, China and South Africa), the developing European countries and the Organizationof the Petroleum Exporting Countries (OPEC). The results of the research show a great level of confirmation of the trilemma for the developing economies and the developed non-European countries. This implies that there is a compromise between exchange rate stability, monetary independence, and free capital mobility.

References

Aizenman, J. (2010). The impossible trinity (aka the policy trilemma). Santa Cruz Department of Economics Working Paper Series qt9k29n6qn.

Aizenman, J., M. D. Chinn, and H. Ito (2008). Assessing the Emerging Global Financial Architecture: Measuring the Trilemma’s Configurations over Time. National Bureau of Economic Research (NBER) Working Paper Series #14533. (December 2008; revised in April 2009).

Asogwa, F. O., A. Joseph, M. I. Attamah & A. H. Ugorji (2016). Testing the Empirical Validity of the Mundell-Fleming Model. International Journal of Science and Research (IJSR),5(2), рр. 2041-2045.

Beck, H. and A. Prinz (2012). The Trilemma of a Monetary Union: Another Impossible Trinity. Intereconomics, Vol. 47, pp 39-43.

Chinn, M. D. and H. Ito (2006). What Matters for Financial Development? Capital Controls, Institutions, and Interactions. Journal of Development Economics 81(1) (October), рр. 163-192.

Chinn, M. D. and H. Ito (2008). A New Measure of Financial Openness. Journal of Comparative Policy Analysis 10(3), рр. 309-322.

Fleming, J. M. (1961). Internal Financial Policies Under Fixed and Floating Exchange Rates. DM/61/28 (November 8) (Departmental Memorandum). IMF Central Files (S 430 “Exchange Rates 1950”).

Ganchev, G (2010). Finance as a system: evolution, theory, politics. Blagoevgrad: SWU “Neofit Rilski” (in Bulgarian).

Hsing, Y. (2012а). Effects of the Trilemma Policies on Inflation, Growth and Volatility in Bulgaria. Theoretical and Applied Economics, Vol. XIX, N 4(569), pp. 49-58.

Hsing, Y. (2012b). Study of the Trilemma Policies and Their Impacts on Inflation, Growth and Volatility in the Czech Republic. Applied Finance, 1624.

Ihnatov, I. & B. Căpraru (2014). The trilemma policies and macroeconomic volatility in Central and Eastern Europe. Procedia Economics and Finance,15, рр. 853-857.

Issing. O. (2006) Europe’s hard fix: the Euro area. International Economics and Economic Policy, December, Vol. 3, N 3-4, pp. 181-196.

Mundell, R. A. (1960). The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates. Quarterly Journal of Economics, Vol. 74 (May), pp. 227-257.

Nenovski, N. (1993). Macroequilibrium in an open economy: A comparative analysis of monetary and budgetary policy in the presence of a fixed exchange rate. Economics and Mathematics, Issue 2 (in Bulgarian)..

Obstfeld, M., J. C. Shambaugh and A. Taylor (2003). The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility. DNB Staff Reports 2003, N 94 De Nederlandsche Bank.

Patnaik, I. and A. Shah (2010). Asia confronts the impossible trinity. Working Paper 2010-64, January. New Delhi: National Institute of Public Finance and Policy.

Simeonov, K. (2018). Economic and monetary unions – theories and practice. Sofia University “St. Kliment Ohridski” and the “Hans Seidel” Foundation (in Bulgarian).

Spasova, E. (2016). The role of exchange rate regimes in achieving sustainable growth in Central and Eastern Europe. Economic and Social Alternatives, Issue 1, pp. 24-40 (in Bulgarian).

Zlatinov, D. (2018). Analytical application of the Mundell-Fleming model to studying the effects of the interaction between fiscal and monetary policy in an open economy. In: Yearbook of Sofia University “St. Kliment Ohridski”, Faculty of Economics, Vol. 16 (in Bulgarian).


How to publish

Are you an author? Please read our publishing terms first.

Learn