The Mundell-Fleming "unholy trinity" is that a small open economy can choose two, but not all three, presumably desirable policies: capital account openness, a fixed exchange rate, and monetary independence. Quite a lot of political economy research goes into figuring out which two countries will choose.
But what do we call it when a country chooses none of them? Cyprus right now has a closed capital account, no monetary independence, and severe limitations on external exchange at any rate.
I nominate "The Devil's Trifecta" but I'm not great at titling things so perhaps readers can do better.
This is a nice way to think about just how screwed up the EU is right now: tasked with choosing one suboptimal policy, they choose three.
But non-economists can play too! Take Rodrik's trilemma, in which states can choose two of national sovereignty, democracy, and economic integration. In Cyprus, the last is gone and the former two are questionable: it looks like democracy might win the day but it was dicey there for a minute, while Cyprus's sovereignty is restricted by the EU and faces a possible threat from Russia. So let's score it a 1.5 with a negative outlook.
IPE @ UNC
IPE@UNC is a group blog maintained by faculty and graduate students in the Department of Political Science at the University of North Carolina at Chapel Hill. The opinions expressed on these pages are our own, and have nothing to do with UNC.
Bookshelf
Tags
Academia Adjustment Afghanistan Africa AIG America Argentina Austerity Bailout Banking Bargaining Basel Bernanke Bias Blogging Business cycle; recession; financial crisis Cap and Trade capital controls capital flows central banks; moral hazard Chavez China China Trade Climate Change Contentious Politics Cuba Currencies Currency Crises; financial crisis Current Account Data Debt Debt; China; United States; Decession Politics Decoupling Deflation democracy Democrats; Trade policy development Diplomacy Dollar; China; Currency Manipulation; Exchange Rates dollar; exchange rate policy ECB ECB; Fed; Monetary Policy Economic Growth Economics Egypt election EMU; monetary union Environment EU; Agriculture; Common Agricultural Policy Euro Europe; labor; immigration European Union Exchange Rates Farm Bill; Agriculture FDI Fed; Monetary Policy finance financial crisis financial crisis; subprime Fiscal Policy; monetary policy; elections Fiscal Stimulus Foreign Aid Foreign Policy France Free Trade Agreements G-20 G20 Summit Game Theory Germany global recession globalization Grand Theory Great Britain Greece health care reform Hegemony Human Rights Iceland imbalance IMF immigration Incentives income distribution income inequality; globalization India Inequality inflation institutions Interests international finance International Law International Monetary System International Relations Investment IPE Iran Iraq Ireland ISA Italy Japan labor markets Latin America Libya Macroeconomics Marxism Mexico Microfinance Miscellany monetary policy Monetary policy; Federal Reserve moral hazard Narcissism Networks Nobelist Smackdown North Korea Obama Oil PIGS Pirates Political Economy Political Methodology Political Science Political Survival Political Theory Power Protectionism Protests Public Choice Public opinion Rational Choice regulation Research Review Russia Sanctions Security Dilemma security threats Soccer Social Science Sovereign Debt Spain Sports Statistics stock markets Systems Tariffs TARP Taxes TBTF Technocracy technology terrorism Trade trade policy UNC Unemployment United States US-South Korea Venezuela WTO WTO; Doha
Blog Archive
-
▼
2013
(95)
-
▼
March
(14)
- The Devil's Trifecta
- Time to Update the Priors: Not All Policies Matter...
- All Networks Are Not Equal (and Financial Crises A...
- Against the "Evil Rapacious Bankers Wut Did It" Vi...
- Brad DeLong Versus Political Science: Grasping Nar...
- A View from Cyprus on Austerity
- Military Keynesianism and the War on Terror
- Defining Austerity Down
- Global Trends Are Not Caused by Local Factors
- Listen to Krugman (No Sarcasm!)
- Trade-related News
- Paradoxically, you had me at hello.
- Climate Change and the Arab Spring
- The Eurozone Political Crisis in One Picture
-
▼
March
(14)
Wednesday, March 27, 2013
The Devil's Trifecta
Subscribe to:
Post Comments (Atom)
2 comments:
Of course, Cyprus has a fixed exchange rate through its membership of the Eurozone. Or do you mean it isn't able to pursue an exchange rate target (vis-à-vis the other Eurozone member states or by controlling the euro's exchange rate vis-à-vis non-Eurozone countries)?
No, I meant that right now Cyprus has almost *no* exchange rate. That is, foreign transactions are limited, must be documented as legitimate imports, etc. The policy goal is autarky at present.
That won't last, but it's the state of things right now.
Post a Comment