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Impossible Trinity, Capital Flow Market and Financial Stability
Author(s) -
PakHung Mo
Publication year - 2009
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2009.00454.x
Subject(s) - economics , monetary economics , capital flows , volatility (finance) , exchange rate , capital market , financial market , systemic risk , financial capital , capital (architecture) , globalization , international economics , financial crisis , finance , macroeconomics , market economy , liberalization , history , archaeology , human capital
SUMMARY As observed by Calvo (2002), the world financial market is wrought with systemic hazards that are largely independent to the individual countries affected. Systemic problem requires systemic instrument. Based on the Mundell‐Fleming model, we institute a capital flow market into an economy. After the additional market is introduced, countries can enjoy the benefits from opening their foreign exchange and capital markets but at the same time, be free from exchange rate volatility and financial crises as well as retain full autonomy in monetary and fiscal policies for maintaining internal balances. The ‘globalization hazard’ is resolved.