The Macroeconomic policy "trilemma", with trade-offs pursuing monetary autonomy, exchange rate stability, and international financial integration, has not been tested formally due to both difficulty in measuring these policy intentions practically and lack of a clear, mathematical implication of the three policy goals in theory. This paper surveys previous metrics for measuring these policy goals, introduces a new "monetary autonomy index", and constructs trilemma indices by adding three individual policy indices. Herein, we consider two measures for exchange rate stability, two for monetary autonomy, and one for financial integration as the individual policy indices. Panel data are collected on over 120 economies since 1974 and catalogued into three groups: developed economies, emerging markets, and other developing economies. We compare different measures for a specific policy goal and show, except for Aizenman et al. (2010) "monetary independence index", how these indices vary across countries in a group. Because the trilemma implies that for any period the trilemma index cannot achieve a very high level like individual policy indices can, and that three individual indices in one time span cannot increase together, we further test hypotheses for the indices' means and variances for countries at different development stages. Finally, we employ GMM dynamic panel data models to test the hypothesis in Aizenman et al. (2010) about relaxing the trilemma via amassing large foreign reserves. Only weak and unrobust evidence is found supporting their hypothesis.
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