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dc.contributor.authorHERWARTZ, Helmut
dc.contributor.authorROESTEL, Jan
dc.date.accessioned2010-03-30T15:27:14Z
dc.date.available2010-03-30T15:27:14Z
dc.date.issued2010
dc.identifier.issn1725-6704
dc.identifier.urihttp://hdl.handle.net/1814/13660
dc.description.abstractAccording to the ’macroeconomic trilemma’ the ability of small economies to pursue an independent monetary policy is jointly determined by country specific foreign exchange (FX) rate flexibility and capital mobility. In particular, free floating economies should be able to isolate domestic interest rates even under globalized capital markets. Recent evidence casts doubts if this gain in independence is substantial. Taking advantage of semiparametric functional regression models we study the trade-off among FX stability, capital mobility and monetary autonomy for a panel of 20 developed small economies. Confirming the macroeconomic trilemma, the exposure to foreign interest rates is found to increase with country specific states of exchange rate stability and capital mobility. Gains in monetary independence appear substantial for countries that abdicate to peg their FX rates, but the marginal benefit of tolerating higher exposure to FX volatility quickly vanishes. Free floating economies might therefore be able to moderately stabilize FX rates at little cost.en
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2010/09en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectmonetary independenceen
dc.subjectmacroeconomic trilemmaen
dc.subjectmonetary policyen
dc.subjectexchange rate regimeen
dc.subjectinterest ratesen
dc.subjectfunctional coefficientsen
dc.subjectsemiparametric modelsen
dc.subjectF31en
dc.subjectF33en
dc.subjectF36en
dc.titleAre Small Countries Able to set their Own Interest Rates? Assessing the implications of the macroeconomic trilemmaen
dc.typeWorking Paperen
dc.neeo.contributorROESTEL|Jan|aut|
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