Revisiting the Mundellian Trilemma (Dilemma) & Emerging Markets…

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““Anyone who spends too much time thinking about international money goes mad.”

--Charles Kindleberger

 Commentary & Analysis

Revisiting the Mundellian Trilemma (Dilemma) & Emerging Markets…

The Mundellian trilemma says policy makers can control only two of the three main variables in global finance, but not all three at the same time.

“…it is not feasible to have at the same time a fixed exchange rate, full capital mobility and monetary policy independence. Only two of the three may co-exist (according to the Mundel-Fleming logic),” writes Helene Ray, of the London School of Business, International Channels of Transmission of Monetary Policy and the Mundellian Trilemma

In fact, in the world where we live, reality has overwhelmed theory—the Trilemma has morphed into the Dilemma. Why?  It’s because global financial markets are inextricably linked through investing, funding, collateral, and trade flows to name a few.  These linkages create increasingly complicated feedback-loops which are not accounted for in modern neoclassical economics. READ MORE...