Does the Trilemma Depend on Regime Change?
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This paper investigates the empirical evidence of the policy trilemma in the Korean economy and its dynamics depending on regime change. We use trilemma indicators and Markov regime switching model to find regime dependent characteristics. Estimated regimes reveal two major financial crises in Korea. Given the numerical tradeoff among trilemma variables, efforts to keep monetary autonomy during crisis period contribute to larger effect on exchange rate volatility or shrinkage of capital mobility than the other periods. In other words, during financial crisis, stabilization of exchange rate or prevention of possible credit crunch minimizes the cost on trilemma.
Abstract
This paper investigates the empirical evidence of the policy trilemma in the Korean economy and its dynamics depending on regime change. We use trilemma indicators and Markov regime switching model to find regime dependent characteristics. Estimated regimes reveal two major financial crises in Korea. Given the numerical tradeoff among trilemma variables, efforts to keep monetary autonomy during crisis period contribute to larger effect on exchange rate volatility or shrinkage of capital mobility than the other periods. In other words, during financial crisis, stabilization of exchange rate or prevention of possible credit crunch minimizes the cost on trilemma.
참고문헌 (25)
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