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Impossible Trinity, Capital Flow Market and Financial Stability

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  • Mo Pak‐Hung

Abstract

As observed by Calvo (2002), the world financial market is wrought with systemic hazards that are largely independent to the individual countries affected. Systemic problem requires systemic instrument. Based on the Mundell‐Fleming model, we institute a capital flow market into an economy. After the additional market is introduced, countries can enjoy the benefits from opening their foreign exchange and capital markets but at the same time, be free from exchange rate volatility and financial crises as well as retain full autonomy in monetary and fiscal policies for maintaining internal balances. The ‘globalization hazard’ is resolved.

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  • Mo Pak‐Hung, 2009. "Impossible Trinity, Capital Flow Market and Financial Stability," Kyklos, Wiley Blackwell, vol. 62(4), pages 611-618, November.
    • Handle: RePEc:bla:kyklos:v:62:y:2009:i:4:p:611-618
    DOI: 10.1111/j.1467-6435.2009.00454.x
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    References listed on IDEAS

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    1. Guillermo A. Calvo, 2002. "Globalization Hazard and Delayed Reform in Emerging Markets," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-31, January.
    2. Aaron Tornell & Frank Westermann, 2005. "Boom-Bust Cycles and Financial Liberalization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201593, April.
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