Research Article
BibTex RIS Cite

Debates Over the Trilemma and Dilemma Hypotheses within the Framework of Monetary Policy Independence Following the 2008 Crisis

Year 2023, Volume: 18 Issue: 2, 549 - 572, 01.08.2023
https://doi.org/10.17153/oguiibf.1242861

Abstract

Based on the findings of empirical studies examining the trilemma-dilemma debate, this study aims to offer a general overview of this debate and light the way for future studies. We note that although some studies investigating the validity of the trilemma hypothesis conclude that it is still valid, others have found evidence in support of the dilemma hypothesis. Furthermore, a limited number of studies report that both hypotheses are partially valid. Examining the findings of these empirical studies as a whole, we can say that although flexible exchange rates continue to provide peripheral countries with more monetary independence, the steady increase in financial integration is weakening the shock-absorbing role played by the exchange rate today.

References

  • Aizenman, J. (2018), “A Modern Reincarnation of Mundell-Fleming's Trilemma” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3135405, (Accessed:08.08.2022).
  • Aizenman, J.; Chinn, M. D. and Ito, H. (2016), “Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions”, Journal of International Money and Finance, Vol.68: 298-330.
  • Aizenman, J.; Chinn, M. D. and Ito, H.(2020), “Financial Spillovers and Macroprudential Policies”, NBER Working Paper, No.24105.
  • Aizenman, J; Chinn, M. D. and Ito, H. (2022), “The Impacts of Crises on The Trilemma Configurations”, NBER Working Paper, No.30406.
  • Anaya, P.; Hachula, M. and Offermanns, C. J. (2015), “Spillovers of US Unconventional Monetary Policy to Emerging Markets: The Role of Capital Flows”, Freie Universitat Berlin School of Business & Economics Discussion Paper, No.35.
  • Anaya, P. and Hachula, M. (2016), “The Dilemma or Trilemma Debate: Empirical Evidence”, DIW Roundup: Politik im Fokus, No.95, DIW Berlin, German Institute for Economic Research., https://www.diw.de/documents/publikationen/73/diw_01.c.532268.de/diw_roundup_95_en.pdf, (Accessed: 11.10.2022).
  • Barlas, Y. and Kaya, N. (2013), “Parasal Genişleme Politikalarının Gelişmekte Olan Ülke Portföy Akımları Kompozisyonuna Etkisi” TCMB Ekonomi Notları, S.2013-01.
  • Batini, N. and Durand, L. (2021), “Facing the Global Financial Cycle: What Role for Policy Responses?”, IMF Working Paper, No.21/34: 1-63.
  • Bekaert, G. and Mehl, A. (2019), “On the Global Financial Market Integration “Swoosh” and the Trilemma”, Journal of International Money and Finance, Vol.94: 227-245.
  • Bergant, K.; Grigoli, F.; Hansen, N. J. and Sandri, D. (2020), “Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?”, IMF Working Paper, No.20/106.
  • Cerutti, E.; Claessens, S. and Laeven, L. (2015), “The Use and Effectiveness of Macroprudential Policies: New Evidence”, IMF Working Paper, No.61.
  • Cerutti, E.; Claessens, S. and Rose, A. K. (2017), “How Important is the Global Financial Cycle? Evidence from Capital Flows”, BIS Working Papers, No.661.
  • Cheng, R. and Rajan, R. S. (2020), “Monetary Trilemma, Dilemma, or Something in Between?”, International Finance, Vol.23, No.2: 257-276.
  • Coman, A. and Lloyd, S. P. (2019), “In the Face of Spillovers: Prudential Policies in Emerging Economies”, ECB Working Paper Series, No.2339.
  • Cordemans, N.; Tielens, J. and Nieuwenhuyze, V. (2019), “Are We Riding the Waves of a Global Financial Cycle in the Euro Area?”, National Bank of Belgium Economic Review, September.
  • Davis, J. S. and Presno, I. (2017), “Capital Controls and Monetary Policy Autonomy in a Small Open Economy”, International Finance Discussion Papers (Board of Governors of the Federal Reserve System), No.1190.
  • Davis, J. S.; Valente, G. and Wincoop, E. V. (2019), “Global Capital Flows Cycle: Impact on Gross and Net Flows”, NBER Working Paper, No.25721.
  • Dees, S. and Galesi, A. (2019), “The Global Financial Cycle and US Monetary Policy in an Interconnected World”, Banque de France Working Paper, No. 744.
  • Degasperi, R; Hong, S. S. and Ricco, G. (2021), “The Global Transmission of U.S. Monetary Policy”, Sciences Po OFCE Working Paper, No. 09/2021: 1-49, http://www.ofce.sciences-po.fr/pdf/dtravail/WP2021-09.pdf , (Accessed: 15.08.2022).
  • Demir, I. (2019), “Monetary Policy Autonomy and International Monetary Spillovers”, FEAF (Lincoln Economics and Finance) Working Paper Series, No.19-01.
  • Edwards, S. (2015), “Monetary Policy Independence Under Flexible Exchange Rates: An Ilusion?”, NBER Working Paper, No.20893.
  • Farhi, E. and Werning, I. (2014), “Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows”, IMF Economic Review, Vol.62, No.4: 569-605.
  • Feng, M. and Cheng, H. (2016), “RMB Exchange Rate Regime Reform and the Trilemma Facing LOEs”, China Finance and Economic Review, Vol.4, No.15: 1-15.
  • Fleming, J.M. (1962), “Domestic Financial Policies Under Fixed and Under Floating Exchange Rates”, IMF Staff Papers, Vol.9, No.3: 369–379.
  • Friedrich, C.; Guerin, P. and Leon, D. L. (2020), “Monetary Policy Independence and the Strength of the Global Financial Cycle”, Bank of Canada Staff Working Paper, No.25.
  • Georgiadis G. and Zhu, F. (2019), “Monetary Policy Spillovers, Capital Controls and Exchange Rate Flexibility, and the Financial Channel of Exchange Rates”, BIS Working Paper, No.797.
  • Georgiadis, G. and Mehl, A. (2015), “Trilemma, Not Dilemma: Financial Globalisation and Monetary Policy Effectiveness”, Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper, No.222.
  • Gülşen, E. and Özmen, E. (2017), “Monetary Policy Trilemma, Inflation Targeting and Global Financial Crisis”, ERC (Economic Research Center) Working Papers, No.17/14, Middle East Technical University.
  • Habib, M. M. and Venditti, F. (2019), “The Global Capital Flows Cycle: Structural Drivers and Transmission Channels”, ECB Working Paper Series, No.2280.
  • Han, X. and Wei, S. J. (2016), “International Transmissions of Monetary Shocks: Between a Trilemma and a Dilemma”, NBER Working Paper, No.22812.
  • Hofmann, B. and Takats, E. (2015), “International Monetary Spillovers”, BIS Quarterly Review, September, 105-118.
  • IMF (2012), “The Liberalization and Management of Capital Flows: An Institutional View”. IMF Policy Survey Paper.
  • İnsel, A. and Sungur, N. (2003), “Sermaye Akımlarının Temel Makroekonomik Göstergeler Üzerindeki Etkileri: Türkiye Örneği”, 1989:III-1999:IV. TEK Tartışma Metni, No.2003/8, Aralık, http://www.tek.org.tr/dosyalar/serhar0303.pdf , (Erişim: 31.08.2018).
  • Kharroubi, E. and Zampolli, F. (2016), “Monetary Independence in a Financially Integrated World: What do Measures of Interest Rate Co-movement tell us?”, BIS Papers, No.88.
  • Klein, M. W. (2012), “Capital Controls: Gates versus Walls”, NBER Working Paper, No.18526.
  • Klein, M. W. and Shambaugh, J. C. (2015), “Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy”, American Economic Journal: Macroeconomics, Vol.7, No.4: 33-66.
  • Landi, V. N. (2017), “Capital Controls, Macroprudential Measures and Monetary Policy Interactions in an Emerging Economy”, Bank of Italy Temi di Discussione (Working Paper), No. 1154, December 5, https://ssrn.com/abstract=3084025 , (Accessed: 02.11.2022).
  • Ligonniere, S. (2017), “Trilemma, Dilemma and Global Players”, CEPII Working Paper, No.2017/15, http://www.cepii.fr/PDF_PUB/wp/2017/wp2017-15.PDF ,(Accessde:15.08.2022).
  • Loipersberger F. and Matschke, J. (2022), “Financial Cycles and Domestic Policy Choices”, European Economic Review, Vol.143, No.104034: 1-29.
  • Magud, N. E.; Reinhart, C. M. and Rogoff, K. S. (2018), “Capital Controls: Myth and Reality”, Annals of Economics and Finance, Vol.19, No.1: 1-47.
  • Majumder, S. B. and Nag, R. N. (2020), “India Facing the Macroeconomic Policy Trade-off – is it Dilemma, Trilemma or Quadrilemma?”, Macroeconomics and Finance in Emerging Market Economies, Vol.14, No.4: 1-21, https://www.researchgate.net/publication/342687340_India_facing_the_macroeconomic_policy_trade-off_-_is_it_dilemma_trilemma_or_quadrilemma , (Accessed: 07.11.2022).
  • Miranda-Agrippino, S. and Rey, H. (2015), “US Monetary Policy and the Global Financial Cycle”, NBER Working Paper, No.21722.
  • Mundell, Robert A. (1963), “Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates”, Canadian Journal of Economic and Political Science, Vol.29, No.4: 475–485.
  • Obstfeld, M. (2015), “Trilemmas and Trade-offs: Living with Financial Globalisation”, BIS Working Papers, No.480.
  • Obstfeld, M.; Ostry, J. D. and Qureshi, M. S.(2019), “A Tie That Binds: Revisiting The Trilemma in Emerging Market Economies”, The Review of Economics and Statistics, Vol.101, No.2: 279–293.
  • Pasricha, G.; Falagiarda, M.; Bijsterbosch, M. and Aizenman, J. (2015), “Domestic and Multilateral Effects of Capital Controls in Emerging Markets”, ECB Working Paper Series, No.1844.
  • Passari, E. and Rey, H. (2015), “Financial Flows and The International Monetary System”, NBER Working Paper, No.21172.
  • Rebucci, A. and Ma, C. (2019), “Capital Controls: A Survey of the New Literature”, NBER Working Paper, No.26558.
  • Rey, H. (2015), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, NBER Working Paper, No.21162.
  • Rey, H. (2016), “International Channels of Transmission of Monetary Policy and The Mundellian Trilemma”, NBER Working Paper, No.21852.
  • TCMB (2010), Finansal İstikrar Raporu, Aralık.
  • TCMB (2011), Enflasyon Raporu, 2011-III.
  • TCMB (2015a), Tasarruf-Yatırım Dinamikleri ve Cari İşlemler Dengesi Gelişmeleri, Ankara.
  • TCMB (2015b), Bülten, S.40, Aralık.
  • Vanegas, J. D. D. (2019), “Making Hard Choices: Trilemmas and Dilemmas of Macroeconomic Policy in Latin America”, Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Vol.22, No.2: 22-38.
  • Zehri, C. (2020), “Restrictive Policy Impacts in Emerging Economies”, Cogent Economics and Finance, Vol.8, No.1: 1-18.

2008 Krizi Sonrasında Para Politikası Bağımsızlığı Çerçevesinde İmkânsız Üçleme ve İkilem Hipotezine İlişkin Tartışmalar

Year 2023, Volume: 18 Issue: 2, 549 - 572, 01.08.2023
https://doi.org/10.17153/oguiibf.1242861

Abstract

Bu çalışma, literatürde süregelen üçleme-ikilem tartışmaları ile ilgili ampirik çalışmaların bulgularından hareketle, tartışmaya genel bir bakış açısı sağlamayı ve gelecekteki araştırmalara ışık tutmayı amaçlamaktadır. Üçleme hipotezinin geçerliliğini araştıran çalışmalardan bazılarında, üçleme hipotezinin geçerliliğini koruduğu sonucuna ulaşılırken, bazı çalışmalarda ikilem hipotezini destekleyen kanıtlar elde edilmiştir. Sınırlı sayıda çalışmada ise üçleme ve ikilem hipotezinin kısmen geçerli olduğuna ilişkin bulgular ortaya konulmuştur. İncelenen ampirik çalışmaların sonuçları bir bütün olarak değerlendirildiğinde; esnek döviz kurları çevre ülkelere daha fazla parasal bağımsızlık sağlamaya devam etmekle birlikte, günümüzde giderek artan finansal entegrasyonla birlikte döviz kurunun şok emici rolünün zayıfladığını söylemek mümkündür.

References

  • Aizenman, J. (2018), “A Modern Reincarnation of Mundell-Fleming's Trilemma” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3135405, (Accessed:08.08.2022).
  • Aizenman, J.; Chinn, M. D. and Ito, H. (2016), “Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions”, Journal of International Money and Finance, Vol.68: 298-330.
  • Aizenman, J.; Chinn, M. D. and Ito, H.(2020), “Financial Spillovers and Macroprudential Policies”, NBER Working Paper, No.24105.
  • Aizenman, J; Chinn, M. D. and Ito, H. (2022), “The Impacts of Crises on The Trilemma Configurations”, NBER Working Paper, No.30406.
  • Anaya, P.; Hachula, M. and Offermanns, C. J. (2015), “Spillovers of US Unconventional Monetary Policy to Emerging Markets: The Role of Capital Flows”, Freie Universitat Berlin School of Business & Economics Discussion Paper, No.35.
  • Anaya, P. and Hachula, M. (2016), “The Dilemma or Trilemma Debate: Empirical Evidence”, DIW Roundup: Politik im Fokus, No.95, DIW Berlin, German Institute for Economic Research., https://www.diw.de/documents/publikationen/73/diw_01.c.532268.de/diw_roundup_95_en.pdf, (Accessed: 11.10.2022).
  • Barlas, Y. and Kaya, N. (2013), “Parasal Genişleme Politikalarının Gelişmekte Olan Ülke Portföy Akımları Kompozisyonuna Etkisi” TCMB Ekonomi Notları, S.2013-01.
  • Batini, N. and Durand, L. (2021), “Facing the Global Financial Cycle: What Role for Policy Responses?”, IMF Working Paper, No.21/34: 1-63.
  • Bekaert, G. and Mehl, A. (2019), “On the Global Financial Market Integration “Swoosh” and the Trilemma”, Journal of International Money and Finance, Vol.94: 227-245.
  • Bergant, K.; Grigoli, F.; Hansen, N. J. and Sandri, D. (2020), “Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)?”, IMF Working Paper, No.20/106.
  • Cerutti, E.; Claessens, S. and Laeven, L. (2015), “The Use and Effectiveness of Macroprudential Policies: New Evidence”, IMF Working Paper, No.61.
  • Cerutti, E.; Claessens, S. and Rose, A. K. (2017), “How Important is the Global Financial Cycle? Evidence from Capital Flows”, BIS Working Papers, No.661.
  • Cheng, R. and Rajan, R. S. (2020), “Monetary Trilemma, Dilemma, or Something in Between?”, International Finance, Vol.23, No.2: 257-276.
  • Coman, A. and Lloyd, S. P. (2019), “In the Face of Spillovers: Prudential Policies in Emerging Economies”, ECB Working Paper Series, No.2339.
  • Cordemans, N.; Tielens, J. and Nieuwenhuyze, V. (2019), “Are We Riding the Waves of a Global Financial Cycle in the Euro Area?”, National Bank of Belgium Economic Review, September.
  • Davis, J. S. and Presno, I. (2017), “Capital Controls and Monetary Policy Autonomy in a Small Open Economy”, International Finance Discussion Papers (Board of Governors of the Federal Reserve System), No.1190.
  • Davis, J. S.; Valente, G. and Wincoop, E. V. (2019), “Global Capital Flows Cycle: Impact on Gross and Net Flows”, NBER Working Paper, No.25721.
  • Dees, S. and Galesi, A. (2019), “The Global Financial Cycle and US Monetary Policy in an Interconnected World”, Banque de France Working Paper, No. 744.
  • Degasperi, R; Hong, S. S. and Ricco, G. (2021), “The Global Transmission of U.S. Monetary Policy”, Sciences Po OFCE Working Paper, No. 09/2021: 1-49, http://www.ofce.sciences-po.fr/pdf/dtravail/WP2021-09.pdf , (Accessed: 15.08.2022).
  • Demir, I. (2019), “Monetary Policy Autonomy and International Monetary Spillovers”, FEAF (Lincoln Economics and Finance) Working Paper Series, No.19-01.
  • Edwards, S. (2015), “Monetary Policy Independence Under Flexible Exchange Rates: An Ilusion?”, NBER Working Paper, No.20893.
  • Farhi, E. and Werning, I. (2014), “Dilemma not Trilemma? Capital Controls and Exchange Rates with Volatile Capital Flows”, IMF Economic Review, Vol.62, No.4: 569-605.
  • Feng, M. and Cheng, H. (2016), “RMB Exchange Rate Regime Reform and the Trilemma Facing LOEs”, China Finance and Economic Review, Vol.4, No.15: 1-15.
  • Fleming, J.M. (1962), “Domestic Financial Policies Under Fixed and Under Floating Exchange Rates”, IMF Staff Papers, Vol.9, No.3: 369–379.
  • Friedrich, C.; Guerin, P. and Leon, D. L. (2020), “Monetary Policy Independence and the Strength of the Global Financial Cycle”, Bank of Canada Staff Working Paper, No.25.
  • Georgiadis G. and Zhu, F. (2019), “Monetary Policy Spillovers, Capital Controls and Exchange Rate Flexibility, and the Financial Channel of Exchange Rates”, BIS Working Paper, No.797.
  • Georgiadis, G. and Mehl, A. (2015), “Trilemma, Not Dilemma: Financial Globalisation and Monetary Policy Effectiveness”, Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper, No.222.
  • Gülşen, E. and Özmen, E. (2017), “Monetary Policy Trilemma, Inflation Targeting and Global Financial Crisis”, ERC (Economic Research Center) Working Papers, No.17/14, Middle East Technical University.
  • Habib, M. M. and Venditti, F. (2019), “The Global Capital Flows Cycle: Structural Drivers and Transmission Channels”, ECB Working Paper Series, No.2280.
  • Han, X. and Wei, S. J. (2016), “International Transmissions of Monetary Shocks: Between a Trilemma and a Dilemma”, NBER Working Paper, No.22812.
  • Hofmann, B. and Takats, E. (2015), “International Monetary Spillovers”, BIS Quarterly Review, September, 105-118.
  • IMF (2012), “The Liberalization and Management of Capital Flows: An Institutional View”. IMF Policy Survey Paper.
  • İnsel, A. and Sungur, N. (2003), “Sermaye Akımlarının Temel Makroekonomik Göstergeler Üzerindeki Etkileri: Türkiye Örneği”, 1989:III-1999:IV. TEK Tartışma Metni, No.2003/8, Aralık, http://www.tek.org.tr/dosyalar/serhar0303.pdf , (Erişim: 31.08.2018).
  • Kharroubi, E. and Zampolli, F. (2016), “Monetary Independence in a Financially Integrated World: What do Measures of Interest Rate Co-movement tell us?”, BIS Papers, No.88.
  • Klein, M. W. (2012), “Capital Controls: Gates versus Walls”, NBER Working Paper, No.18526.
  • Klein, M. W. and Shambaugh, J. C. (2015), “Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy”, American Economic Journal: Macroeconomics, Vol.7, No.4: 33-66.
  • Landi, V. N. (2017), “Capital Controls, Macroprudential Measures and Monetary Policy Interactions in an Emerging Economy”, Bank of Italy Temi di Discussione (Working Paper), No. 1154, December 5, https://ssrn.com/abstract=3084025 , (Accessed: 02.11.2022).
  • Ligonniere, S. (2017), “Trilemma, Dilemma and Global Players”, CEPII Working Paper, No.2017/15, http://www.cepii.fr/PDF_PUB/wp/2017/wp2017-15.PDF ,(Accessde:15.08.2022).
  • Loipersberger F. and Matschke, J. (2022), “Financial Cycles and Domestic Policy Choices”, European Economic Review, Vol.143, No.104034: 1-29.
  • Magud, N. E.; Reinhart, C. M. and Rogoff, K. S. (2018), “Capital Controls: Myth and Reality”, Annals of Economics and Finance, Vol.19, No.1: 1-47.
  • Majumder, S. B. and Nag, R. N. (2020), “India Facing the Macroeconomic Policy Trade-off – is it Dilemma, Trilemma or Quadrilemma?”, Macroeconomics and Finance in Emerging Market Economies, Vol.14, No.4: 1-21, https://www.researchgate.net/publication/342687340_India_facing_the_macroeconomic_policy_trade-off_-_is_it_dilemma_trilemma_or_quadrilemma , (Accessed: 07.11.2022).
  • Miranda-Agrippino, S. and Rey, H. (2015), “US Monetary Policy and the Global Financial Cycle”, NBER Working Paper, No.21722.
  • Mundell, Robert A. (1963), “Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates”, Canadian Journal of Economic and Political Science, Vol.29, No.4: 475–485.
  • Obstfeld, M. (2015), “Trilemmas and Trade-offs: Living with Financial Globalisation”, BIS Working Papers, No.480.
  • Obstfeld, M.; Ostry, J. D. and Qureshi, M. S.(2019), “A Tie That Binds: Revisiting The Trilemma in Emerging Market Economies”, The Review of Economics and Statistics, Vol.101, No.2: 279–293.
  • Pasricha, G.; Falagiarda, M.; Bijsterbosch, M. and Aizenman, J. (2015), “Domestic and Multilateral Effects of Capital Controls in Emerging Markets”, ECB Working Paper Series, No.1844.
  • Passari, E. and Rey, H. (2015), “Financial Flows and The International Monetary System”, NBER Working Paper, No.21172.
  • Rebucci, A. and Ma, C. (2019), “Capital Controls: A Survey of the New Literature”, NBER Working Paper, No.26558.
  • Rey, H. (2015), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, NBER Working Paper, No.21162.
  • Rey, H. (2016), “International Channels of Transmission of Monetary Policy and The Mundellian Trilemma”, NBER Working Paper, No.21852.
  • TCMB (2010), Finansal İstikrar Raporu, Aralık.
  • TCMB (2011), Enflasyon Raporu, 2011-III.
  • TCMB (2015a), Tasarruf-Yatırım Dinamikleri ve Cari İşlemler Dengesi Gelişmeleri, Ankara.
  • TCMB (2015b), Bülten, S.40, Aralık.
  • Vanegas, J. D. D. (2019), “Making Hard Choices: Trilemmas and Dilemmas of Macroeconomic Policy in Latin America”, Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Vol.22, No.2: 22-38.
  • Zehri, C. (2020), “Restrictive Policy Impacts in Emerging Economies”, Cogent Economics and Finance, Vol.8, No.1: 1-18.
There are 56 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Nagehan Keskin 0000-0003-3217-2686

Publication Date August 1, 2023
Submission Date January 26, 2023
Published in Issue Year 2023 Volume: 18 Issue: 2

Cite

APA Keskin, N. (2023). Debates Over the Trilemma and Dilemma Hypotheses within the Framework of Monetary Policy Independence Following the 2008 Crisis. Eskişehir Osmangazi Üniversitesi İktisadi Ve İdari Bilimler Dergisi, 18(2), 549-572. https://doi.org/10.17153/oguiibf.1242861