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The Impossible Trinity and Constraints on Policy options

The Impossible Trinity and Constraints on Policy options. Reserve Bank of India First International Research Conference February 12-13 2010. Irma Rosenberg Board Member of Swedish National Debt Office. The impossible trinity. Out of the 3 objectives Free capital mobility

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The Impossible Trinity and Constraints on Policy options

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  1. The Impossible Trinity and Constraints on Policy options Reserve Bank of India First International Research Conference February 12-13 2010 Irma Rosenberg Board Member of Swedish National Debt Office

  2. The impossible trinity Out of the 3 objectives • Free capital mobility • Exchange rate stability • Monetary independence policy makers can choose only 2

  3. Emerging Market Countries:Exchange Rate Regimes 1991, 1999 and 2006 56% (22) 49% (19) 46% (18) 41% (16) 36% (14) 36% (14) 15% (6) 13% (5) 8% (3) Note: Number of countries in parenthesis Source: Fisher (2008), IMF

  4. The Trilemma Choices in Asia Financial Exhange rate Monetary policy openness* regime regime China 1 Managed Stability of val. of currency Hong Kong 0 Fixed Currency board India 1 Managed float Price stability and adequate credit supply Indonesia 1 Managed float Inflation target 2005 Korea 1 Float Inflation target 1998 Malaysia 1 Managed float Price stability/sustainable growth Phillipines 1 Managed float Inflation target 2002 Singapore 0 Managed Price stability (intermediate target) Thailand 1 Managed float Inflation target 2000 Note IMF Index 2005, 1= restrictions 0= no restrictions Source: Hannoun (2007) and central bank webs

  5. Sweden Inflation expectations well anchoredAnnual percentage change Note. Refers to money market participants. Sources: TNS Sifo Prospera and Statistics Sweden

  6. Sweden Inflation has fallen remarkablyCPI, annual percentage change Fixed exchange rate Floating exchange rate and inflation targetting Sources: Statistics Sweden and the Riksbank

  7. Sweden Growth is higherGDP, annual percentage change Floating exchange rate and inflation targetting Fixed exchange rate Source: Statistics Sweden

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