Impossible Trinity

[@s2soko]

Brilliant! Much helpful for me to understand the possible trinity more than my lecture handout

[@pc5509]

At 0:30, the script reads "Singapore has chosen to have free capital movement and fix interest rate". This is not consistent with the slide which says Singapore has free capital movement and fix exchange rate. The slide is more correct. It's actually not right to say Singapore has fix exchange rate either because Singapore dollar unlike e.g. Hong Kong dollar (which is pegged to USD) is pegged to a basket of currencies of its trading partners. A stable exchange rate is the more appropriate description in this context.

[@christinaachomuma9377]

Thank you for sharing! Your slides are really good!

[@andrebezuidenhout3135]

Great video. The walk through to explain the concept in the disney land example was clear and concise

[@Atheist-Libertarian]

Wait. If insted of Central Bank selling its Forex reserves and buying back its own currency, Insted of that if a Sovereign Wealth fund sell its foreign assets and buys donestic currency, then will it not break this impossible trinity ? Because when Central Banks buys back its own currency, it is unintentionally reducing money supply, But when Sovereign wealth fund does that, it does not reduce the money supply, because unlike Central Bank they can't destroy their currency, they simply hold it or invest in domestic assets. Isn't it possible?

[@primeparadox9796]

If buying back DD, why does that mean it has lost autonomy over interest rate?

[@jrtman]

+PrimeParadox Remember that in this example, Disneyland's central bank loosened its monetary policy, which means they increased the money supply, in order to lower the interest rate. But all else equal, the lower interest rate makes holding interest-earning Disneyland assets less profitable than in, say, the United States, which causes the Disney dollar to depreciate against the U.S. dollar due to free capital flow. But wait, Disneyland wants to maintain a fixed exchange rate against the USD, so in response to this depreciation it must start buying back its own currency in order to increase demand, which will cause their currency to appreciate. They will continue doing this until the fixed exchange rate target is once again met. Remember, though, that when a central bank buys its own currency, it is decreasing the money supply. This decrease in the money supply will undo the previous increase in the money supply, thereby causing interest rates to rise back towards the initial level. Free capital flow has meant that Disneyland cannot control interest rates while also fixing its exchange rate. In order to be able to set interest rates and have a fixed exchange rate, it must therefore limit capital flow.

[@etbedtalksAOH]

@@jrtman Thank you

[@dhirajchaudhary4041]

If supply of money increases why does it decreases interest rate?

[@divyakuppili]

Is China able to break this impossible trinity?

[@RohanDutt31]

Brilliant video!

[@kane4245]

so the US has capital mobility and independent monetary policy?

[@tsp8855]

Well the US doesn't really tamper too much with its Ex Rate, so it focuses on Interest rates changes which naturally attracts/deters capital flow, hence it more or less keeps his hands out of the ForEx market and just lets it float. The use of monetary policy via base rates, I presume, is most likely to be the priority of the US given the importance that is placed on real variables like real output and unemployment.

[@eduardosanmiguel8132]

Yes

[@SandyCheong]

interesting example!

[@kindalindaable]

Well done! Thanks a lot! :D

[@zassinthal]

thank you

[@rajibdolai2876]

thanks

[@SaadKhan8787]

Brill explnation

[@yuong1979]

As of 2019. We see china attempting the disneyland experiment.

[@JC-eh6ms]

They're running out of options. It's simply not sustainable.

[@Sock1122]

much appreciation for the upload but my guy is pronouncing "exchange rate" exactly the same as "interest rate" which can make it much harder to follow what he's saying

[@YetimDoyuzdurangpt]

dont read from board

[@Ggma8989]

People are just dumb enough to do all three things at once

[@Kromo]

my friend, i wholeheartedly agree. I'll have a chicken chow mein without the spring onions pls.

[@rogercctv5086]

Your children will work for his. Good luck future slave.