Impossible Trinity, Capital Flow Market and Financial Stability

In: Kyklos: international review for social sciences, Band 62, Heft 4, S. 611-618

Abstract

SUMMARYAs 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.