The Impossible Trinity and Constraints on Policy options Reserve Bank of India First International Research Conference February 12-13 2010 Irma Rosenberg.

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Presentation transcript:

The Impossible Trinity and Constraints on Policy options Reserve Bank of India First International Research Conference February Irma Rosenberg Board Member of Swedish National Debt Office

The impossible trinity Out of the 3 objectives Free capital mobility Exchange rate stability Monetary independence policy makers can choose only 2

Emerging Market Countries:Exchange Rate Regimes 1991, 1999 and 2006 Source: Fisher (2008), IMF 8% (3) 13% (5) 15% (6) 56% (22) 41% (16) 36% (14) 36% (14) 46% (18) 49% (19) Note: Number of countries in parenthesis

The Trilemma Choices in Asia Financial Exhange rate Monetary policy openness* regime regime China 1 ManagedStability of val. of currency Hong Kong0 Fixed Currency board India1 Managed floatPrice stability and adequate credit supply Indonesia1 Managed floatInflation target 2005 Korea1 F loatInflation target 1998 Malaysia1 Managed floatPrice stability/sustainable growth Phillipines1 Managed floatInflation target 2002 Singapore0 ManagedPrice stability (intermediate target) Thailand1 Managed floatInflation target 2000 Note IMF Index 2005, 1= restrictions 0= no restrictions Source: Hannoun (2007) and central bank webs

Sweden Inflation expectations well anchored Annual percentage change Note. Refers to money market participants. Sources: TNS Sifo Prospera and Statistics Sweden

Sweden Inflation has fallen remarkably CPI, annual percentage change Sources: Statistics Sweden and the Riksbank Fixed exchange rate Floating exchange rate and inflation targetting

Sweden Growth is higher GDP, annual percentage change Source: Statistics Sweden Fixed exchange rate Floating exchange rate and inflation targetting