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Yu Hsing
''Test of the Impossible Trinity Hypothesis for Five Selected Countries in the Asian and Pacific Regions''
( 2012, Vol. 32 No.1 )
This paper examines the functional form of the impossible trinity hypothesis for five selected countries in the Asian and Pacific regions including Australia, Japan, New Zealand, Singapore and South Korea. The linear, log-log and semi-log forms are compared. Based on the mean absolute percent error and Akaike information criterion, we find that the semi-log form on the dependent variable performs better than the other three forms. The goodness of fit is relatively high, suggesting that there is support for the impossible trinity hypothesis. These countries may adopt different policy combinations. Australia maintains a middle ground approach to all three goals. South Korea emphasizes monetary policy independence and financial market openness and allows the exchange rate of the won to fluctuate freely based on market forces.
Keywords: Impossible trinity, trilemma, exchange rate stability, monetary policy independence, financial market openness, functional form
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Manuscript Received : Jan 24 2012 Manuscript Accepted : Feb 10 2012

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