The Mundell Fleming Trilemma
Nick Name
Mundell-Fleming Trilemma
The Mundell-Fleming Trilemma states that a fixed exchange rate, monetary autonomy and free flow of capital are incompatible
- It is impossible for a country to implement the 3 following policies simultaneously
- Independent Monetary Policy
- Open Capital Account
- Fixed/Pegged Exchange Rate
- If a country does try this, it's likely that Capital will flee the country (to pursue better interest rate arbitrage opportunities)
Examples of Countries Facing the Mudell-Fleming Trilemma