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Response to Trilemma & Dilemma

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Submitted By xonta
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Response to Trilemma or Dilemma ?

In today’s economics, government effects by policies, exchange rate and capital mobility are key factors of today’s macroeconomics. Today’s economists are also discussing that situation deliberately to show the importance of that to the world. For instance, if we discuss the centre countries’ monetary policies, we can easily show that in the international trade monetary policy becomes more valuable for them than other countries. In addition to this, floating exchange rate regimes and sustainability of exchange rate are further important discussions to focus. Therefore, monetary policies and their effects on world are strictly connected each other which can be easily analysed thus far.
In my response paper, I will give the analysis of the two paper; Helene Rey’s Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence (2013) and Obsfeltd, Shambaugh and Taylor’s The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies and Capital Mobility (2004). Firstly, I will give the summary of this two papers and secondly, argue and compare two papers. At final, I will discuss the important points at my point of view.
Summary of two papers; Dilemma and Trilemma First of all, “impossible trinity” aka “trilemma” had a great impact in macroeconomics. So many economists are still discussing its importance and writing papers about its importance. In Obstfeld, Shambaugh and Taylor’s paper (2004), they analyse the trilemma’s perspective and carry that in macroeconomic world.
At first, they speak of “golden straitjacket” by questioning it which aims to examine the restraints that financial globalization places on macroeconomics policies. After that, they explain the trilemma by three subjects; 1. To stabilize the exchange rate 2. To enjoy the free international capital mobility 3. To engage

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