The open-economy ELB: Contractionary monetary easing and the trilemma

• 成果类型: Article
• 署名作者: Cavallino, Paolo; Sandri, Damiano
• 署名单位: Bank for International Settlements (BIS); Bank for International Settlements (BIS)
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2022.103691
• 发表日期: 2023
• 关键词: Monetary policy; capital flows; collateral constraints; Currency mismatches; Carry trade

摘要

Contrary to Mundell's trilemma, we show that free capital mobility may prevent monetary pol-icy from ensuring output stability even if the exchange rate is flexible due to the existence of an Effective Lower Bound. The ELB is an interest rate threshold below which monetary easing becomes contractionary because of adverse effects on credit supply. A tightening in global monetary and financial conditions increases the ELB and may force central banks to hike rates even though domestic economic activity contracts. We also show that the ELB gives rise to a novel inter-temporal trade-off for monetary policy and calls for using a broad range of policy tools to restore monetary transmission.(c) 2022 Published by Elsevier B.V.