"Impossible Trinity" in Asian Economics

• Main Authors: Chou, Hsiu-Hsia, 周秀霞
• Other Authors: Cheu-Tien Hu
• Format: Others
• Language: zh-TW
• Published: 1998
• Online Access: http://ndltd.ncl.edu.tw/handle/49813931140119076630

碩士 === 國立臺灣大學 === 國際企業學系 === 86 === Fixed exchange rates can reduce the costs caused by exchange rate ged uncertainty, restrain domestic inflation pressures, provide an expectations anchor and form the stances and mix of macroeconomics policies. However the major problem is that the monetary authority has to give up monetary policy independence. A country can not simultaneously maintain an open capital account, an exchange rate target and an independent monetary policy. In other words, a country can not be exempt from the constraints of "impossible trinity". In this paper, under the assumptions of free capital mobility and pegged exchange rates, a derived model of Moreno & Spiegel*s (1997) model was used to test the independence of 5 Asian countries* monetary policies. The conclusions are presented as follows: For Taiwan and Korea, it was found that they are not exempt from "impossible trinity", as the monetary authority can not manipulate the monetary base through changing domestic credit. A shock to domestic credit leads to a fully offsetting decline in foreign assets. In the Philippines, Thailand and Malaysia, impossible trinity was violated in each, as the monetary authority could change the domestic credit partially. Concerning the sterilization effort: each country possessed a different degree of sterilization. Taiwan and Korea pursued an aggressive sterilization policy that presumably allowed more fluctuations in the exchange rate in response to foreign asset shocks. Philippines even over sterilized their capital flows, while Thailand and Malaysia did not sterilize capital flows.