DP11027 International Channels of Transmission of Monetary Policy and the Mundellian Trilemma

Author(s):	Hélène Rey
Publication Date:	December 2015
Keyword(s):	Global Financial Cycle, Monetary Policy, Trilemma
JEL(s):	F33, F41, F42
Programme Areas:	Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11027

This lecture argues that the Global Financial Cycle is a challenge for the validity of the Mundellian trilemma. I present evidence that US monetary policy shocks are transmitted internationally and affect financial conditions even in inflation targeting economies with large financial markets. Hence flexible exchange rates are not enough to guarantee monetary autonomy in a world of large capital flows.