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Encyclopedia > Impossible trinity

I am currently taking a class with professor Mundell and he has repeatedly disputed that the unholy trinity had anything to do with him! In fact he asserts that it should be called the unholy duality. A country cannot have both: An independet monetary policy and a fixed exchange rate (nothing more needs to be said about free capital movements!)

The Impossible Trinity
The Impossible Trinity

The Impossible Trinity (or Inconsistent Trinity or Triangle of Impossibility or Unholy Trinity) is the hypothesis in international economics that it is not possible to have Image File history File links Inconsistent_Trinity. ... Image File history File links Inconsistent_Trinity. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ...

Quoting from a Slate [1] tribute to Robert Mundell written by Paul Krugman in October 1999: Capital has a number of related meanings in economics, finance and accounting. ... Monetary policy is the process by which the government, central bank, or monetary authority manages the money supply to achieve specific goals—such as constraining inflation or deflation, maintaining an exchange rate, achieving full employment or economic growth. ... Slate Thick slate fragment Slate roof Slate is a fine-grained, homogeneous, metamorphic rock derived from an original shale-type sedimentary rock composed of clay or volcanic ash through low grade regional metamorphism. ... Robert Alexander Mundell CC (born October 24, 1932) is a professor of economics at Columbia University. ... Paul Krugman Paul Robin Krugman (born February 28, 1953) is an economist who has written several books, and since 2000 has written a twice-weekly op-ed column for The New York Times. ... 1999 (MCMXCIX) was a common year starting on Friday, and was designated the International Year of Older Persons by the United Nations. ...

"[...] The point is that you can't have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain--or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today, or for that matter most of Europe)."

The formal model for this hypothesis is the Mundell-Fleming model developed in the 60s by Robert Mundell and Marcus Fleming. The idea of the impossible trinity went from theoretical curiosity to becoming the foundation of open economy macroeconomics in the 1980s, by which time capital controls had broken down in many countries, and conflicts were visible between pegged exchange rates and monetary policy autonomy. While one version of the impossible trinity is focused on the extreme case - with a perfectly fixed exchange rate, with a perfectly open capital account, a country has absolutely no say on monetary policy. But the real world has thrown up repeated examples where when the capital account becomes fairly open, the greater the exchange rate rigidity, the lower the monetary policy autonomy. The Mundell-Fleming model is an economic model first set forth by Robert Mundell and Marcus Fleming. ... The 1960s decade refers to the years from January 1, 1960 to December 31, 1969, inclusive. ... Marcus Fleming (who died in 1976) was Deputy Director of the research department of the International Monetary Fund for many years; he was already a member of this department during the period of Mundells affiliation. ...

In the modern world, given the growth of trade in goods and services, capital controls are easily evaded. In addition, capital controls introduce numerous distortions. Hence, there is virtually no important country which has an effective system of capital control. Under these conditions, the impossible trinity asserts that a country has to choose between reducing currency volatility, or running a stabilising monetary policy. It cannot have both.

See also

  Results from FactBites:
Trinity - Wikipedia, the free encyclopedia (7626 words)
Within Christianity, the doctrine of the Trinity states that God is a single Being who exists, simultaneously and eternally, as a communion of three persons (personae, prosopa): Father (the Source, the Eternal Majesty); the Son (the eternal Logos or Word, incarnate as Jesus of Nazareth); and the Holy Spirit (the Paraclete or advocate).
Modalists attempted to resolve the mystery of the Trinity by holding that the Father, the Son and the Holy Ghost are merely modes, or roles, of God Almighty.
Nontrinitarians assert that Catholics must have recognized the pagan roots of the trinity, because the allegation of borrowing was raised by some disputants during the time that the Nicene doctrine was being formalized and adopted by the bishops.
— About Trinity — (799 words)
Trinity aspires to be a place where children learn that God is at the heart of all that we are and do, that we do not belong to ourselves but to God, that the chief purpose of our lives is to glorify God and enjoy him forever.
At Trinity, we aim to set our children out upon a journey of learning about God and the world he has made, with the hope that they will enter into a personal relationship with God through Christ, and follow the path of discipleship and vocation wherever God leads.
Trinity’s Board, faculty, and staff are committed to the Triune God, and to the basic tenets of Christianity as expressed by the orthodox and evangelical traditions.
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