%Paper: ewp-if/0407008 %From: Patt Bagdon %Date: Thu, 15 Jul 2004 11:57:11 -0700 % This binary submission is available via anonymous ftp to econwpa.wustl.edu % in the section ewp-if/papers/0407/0407008.pdf % Or by sending a GET 0407008.pdf via mail to receive a uuencoded version % If the file is a .tar.Z or tar.gz file you will have to uncompress and untar it. % Additional user provided instructions, if any, are attached below. BODY HAS BEEN SUBMITTED VIA FTP. --=====================_10667515==_.ALT Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable \\
Title: Monetary Sovereignty, Exchange Rates, and Capital Controls:  The Trilemma in the Interwar Period
Author: Maurice Obstfeld (Economics Department, University of California, Berkeley & NBER) and Jay C. Shambaugh (Department of Economics, Dartmouth College) and Alan M. Taylor (Department of Economics, University of California, Davis & NBER)
Contact:  bagdon@haas.berkeley.edu
Comments:  41 pages
JEL:   F33, F41, F42, N10
EWP References:  none
Report-no:  (Center for International and Development Economics Research, University of California, Berkeley Working Papers) IBER-CalBerk C04-134
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Abstract:  The interwar period was marked by the end of the classical gold standard regime and new levels of macroeconomic disorder in the world economy. The interwar disorder often is linked to policies inconsistent with the constraint of the open-economy trilemmathe inability of policymakers simultaneously to pursue a fixed exchange rate, open capital markets, and autonomous monetary policy. The first two objectives were linchpins of the pre-1914 order. As increasingly democratic polities faced pressures to engage in domestic macroeconomic management, however, either currency pegs or freedom of capital movements had to yield. This historical analytic narrative is compellingwith significant ramifications for today=92s world, if truebut empirically controversial. We apply theory and empirics to the interwar data and find strong support for the logic of the trilemma. Thus, an inability to pursue consistent policies in a rapidly changing political and economic environment appears central to an understanding of the interwar crises, and the same constraints still apply today.
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