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dc.contributor.authorAizenman, Joshuaen_US
dc.contributor.authorSengupta, Rajeswarien_US
dc.description.abstractA key challenge facing most emerging market economies today is how to simultaneously maintain monetary independence, exchange rate stability and financial integration subject to the constraints imposed by the Trilemma, in the era of deepening globalization. In this paper we study the Trilemma choices of the two key drivers of global growth, China and India. We overview and contrast the policy choices of the two, and test their Trilemma choices and tradeoffs. China's Trilemma configurations are unique relative to the one characterizing other emerging markets in the predominance of exchange rate stability, and in the failure of the Trilemma regression to capture any significant role for financial integration. One possible interpretation is that the segmentation of the domestic capital market in China, its array of capital controls and the large hoarding of international reserves imply that the 'policy interest rate' does not reflect the stance of monetary policy. In contrast, the Trilemma configurations of India are in line with the regression results of other emerging countries, and are consistent with the predictions of the Trilemma tradeoffs. India like other emerging economies has overtime converged towards a middle ground between the three policy objectives, and has achieved comparable levels of exchange rate stability and financial integration buffered by sizeable international reserves.en_US
dc.publisher|aUniv. of California at Santa Cruz, Dep. of Economics |cSanta Cruz, Calif.en_US
dc.relation.ispartofseries|aWorking Papers, UC Santa Cruz Economics Department |x693en_US
dc.subject.keywordFinancial trilemmaen_US
dc.subject.keywordInternational reservesen_US
dc.subject.keywordForeign exchange interventionen_US
dc.subject.keywordMonetary policyen_US
dc.subject.keywordCapital account opennessen_US
dc.titleThe financial trilemma in China and a comparative analysis with Indiaen_US
dc.typeWorking Paperen_US

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