Determinants of the Trilemma Policy Combination

Abstract

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Is there a trade-off between free capital mobility, financial stability and fiscal policy flexibility in the EMU?

“…4, specification errors and methods of estimation may affect the results obtained concerning the trilemma configuration. Besides the alternative between a linear and a logarithmic specification, other possible estimations considered in the literature imply estimating a trilemma equation via two-stage least squares, Kalman filter and tobit (see for instance Ito and Kawai 2014;Cortuk and Singh 2013). Therefore, we re-estimate Eq.…”

The ‘trilemma’ hypothesis and policy implications for Fiji

“…Ito and Kawai () are another example of monetary policy measurement. Ito and Kawai () not only use the indexes proposed by Ito and Kawai () but also investigate the determinants of the trilemma policy goals. The approach of Ito and Kawai () also allows for estimation of optimal levels of the three policy goals, and in turn, comparison of the optimality estimates with actual levels—which has important implications for policy efficiency.…”

“…Ito and Kawai () not only use the indexes proposed by Ito and Kawai () but also investigate the determinants of the trilemma policy goals. The approach of Ito and Kawai () also allows for estimation of optimal levels of the three policy goals, and in turn, comparison of the optimality estimates with actual levels—which has important implications for policy efficiency. We adopt the framework of Ito and Kawai () to evaluate the determinants and how various combinations of trilemma policies can affect policy goals, specifically output growth and inflation, for Fiji.…”

“…The approach of Ito and Kawai () also allows for estimation of optimal levels of the three policy goals, and in turn, comparison of the optimality estimates with actual levels—which has important implications for policy efficiency. We adopt the framework of Ito and Kawai () to evaluate the determinants and how various combinations of trilemma policies can affect policy goals, specifically output growth and inflation, for Fiji. In passing, we note that Ito and Kawai () use panel data of 78 countries including Fiji, while we provide results specific to Fiji and extend Ito and Kawai () by studying the policy goal effects on output growth and inflation.…”

“…We adopt the framework of Ito and Kawai () to evaluate the determinants and how various combinations of trilemma policies can affect policy goals, specifically output growth and inflation, for Fiji. In passing, we note that Ito and Kawai () use panel data of 78 countries including Fiji, while we provide results specific to Fiji and extend Ito and Kawai () by studying the policy goal effects on output growth and inflation. Although we use fewer determinant variables than Ito and Kawai (), the results are mostly similar in sign although the magnitudes of the estimates differ significantly.…”