The Mundell-Fleming Trilemma Combination on Middle-Income Countries

Rinny Apriliany Zakaria, Ghozali Maski, Putu Mahardika Adi Saputra, Ahmed Mohamed Annegrat

Abstract


The Mundell-Fleming trilemma hypothesis stated that a country could not simultaneously achieve exchange rate stability, financial integration, and monetary independence. The fixed exchange rate policy, free capital mobility, and monetary independence are trade-offs and impossible to run simultaneously. This research aims to identify the combination of the Mundell-Fleming trilemma formed in middle-income countries. Using the panel ARDL model, we found that the Mundell-Fleming trilemma tends to converge in the short run. While on the long run, middle-income countries tend to choose monetary independence and financial integration, resulting in a less stable exchange rate, as mentioned in the hypothesis


Keywords


Mundell-Fleming trilemma; exchange rate stability, financial integration; monetary independence

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References


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DOI: http://dx.doi.org/10.17977/um002v15i12023p050

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