【Macro Seminar】Mundell-Fleming Open Economy Trilemma in the 21st Century – Are we heading towards a multipolar global architecture?

  • 研討會日期 : 2023-06-21
  • 時間 : 14:30
  • 主講人 : Professor Joshua Aizenman
  • 地點 : Conference Room B110
  • 演講者簡介 : Professor Joshua Aizenman received his PhD from the University of Chicago in 1981. He is currently Robert R. & Katheryn A. Dockson Chair in Economics and International Relations and Professor of International Relations and Economics at the University of Southern California. His research interests are Commercial and Financial Policies in the Open Economy, Political Economy, Development and Transition, Exchange Rate Regimes, Capital Mobility, and Macro Policies.
  • 演講摘要 : The policy Trilemma (the ability to accomplish only two policy objectives out of financial integration, exchange rate stability, and monetary autonomy) remains a valid macroeconomic framework for the 21st century. A modern incarnation of the trilemma is essential for understanding the evolving global financial architecture, and for coming up with ways to mitigate financial fragility. The scarcity of policy instruments relative to the policy goals implies complex country-specific tradeoffs between the policy goals. The financial crises of the 1990s induced Emerging markets to converge to trilemma's middle ground -- managed exchange-rate flexibility, controlled financial integration, and viable but limited monetary independence. Capital flight crises added financial stability to the trilemma's policy goals. New policies were added to deal with financial fragility associated with financial integration, including precautionary management of international reserves and sovereign wealth funds by emerging markets, swap lines among OECD's central banks, and macroeconomic prudential regulations. The trilemma trade-offs have been impacted by a country's balance sheet exposure to hard currencies, the exchange-rate regime, and the growing sensitivity to 'Risk-on, Risk-off' shocks emanating from the U.S. and the Eurozone in the aftermath of the Global Financial Crisis. Recent developments suggest a convergence to multipolar global architecture, dominated by the US, the EU/EZ, and China, three blocks of comparable global GDP shares (PPP adjustment). While the global financial architecture has been dominated by the U.S. after WWII, recent trends suggest the convergence toward a more symmetric financial configuration. The future financial architecture will be determined by geo-political trends, the depth and liquidity of sovereign euro bonds, financial crises and the quality of prudential policies, the return of the Cold War negative sum mentality, and the graduation of the selective and growing share of Emerging Markets into investible destinations facing growing external demand for their sovereign local currency bonds and equities.  We conclude with a review of recent examples of the modern incarnation of the trilemma at times of growing financial instability -- the proliferation and growing use of swap lines during the past twenty years as a mechanism of sovereign debt 'evergreening,' and the heterogeneity of emerging markets’ adjustment to the present monetary tightening cycle.