A Brief Discussion of the Effectiveness of Monetary Policy in a Fixed Exchange Rate System With Perfect Capital Mobility and an Analysis of the “Impossible Trinity” Thesis

Abstract

The purpose of this essay is to discuss the effectiveness of monetary policy in a fixed exchange rate system with perfect capital mobility and an analysis of the Impossible Trinity thesis, with the IS-LM-BP framework. Section 1 analyses the implications of capital mobility. Section 2 explains the IS-LM model framework. Section 3 analyse the balance of payments. Section 4 discusses the relationship between the balance of payments and the monetary accounts. Section 5 discusses the implications of monetary policy with perfect capital mobility. Section 6 discusses the monetary policy effectiveness and conclusions.

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