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The ‘trilemma’ hypothesis and policy implications for Fiji

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  • Hyeon-seung Huh
  • Philip Inyeob Ji
  • Cyn-Young Park

Abstract

type="main"> This paper examines the trilemma constraint for Fiji; that is, we investigate how trilemma policy variables were used to address policy trade-offs among the three objectives of exchange rate stability, monetary autonomy, and financial openness. Fiji makes an interesting case because of its policy orientation towards a stable exchange rate and adequate foreign reserves. Our results suggest that the trilemma constraint is binding for Fiji and policy priority is given to exchange rate stability and monetary policy independence, while less emphasis is placed on financial market openness. We also find that the actual policy levels do not deviate substantially from optimal levels, which evidences that Fiji's policy management has been efficient under the trilemma constraint. Finally, we also study the effects of various trilemma policy combinations and foreign reserve holdings on output growth and inflation.

Suggested Citation

  • Hyeon-seung Huh & Philip Inyeob Ji & Cyn-Young Park, 2016. "The ‘trilemma’ hypothesis and policy implications for Fiji," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 30(1), pages 99-119, May.
    • Handle: RePEc:bla:apacel:v:30:y:2016:i:1:p:99-119
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    File URL: http://hdl.handle.net/10.1111/apel.12136
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    Cited by:

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    2. Chee-Hong Law & Chee-Lip Tee & Wei-Theng Lau, 2019. "The Impacts of Financial Integration on the Linkages Between Monetary Independence and Foreign Exchange Reserves," International Economic Journal, Taylor & Francis Journals, vol. 33(2), pages 212-235, April.

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