First of all, a brief introduction.

1 "Mendel's Three Difficulties", also known as the impossible trinity, was put forward by American economist paul krugman on the policy choice under the open economy.

2. It means that under the condition of open economy, the independence of domestic monetary policy, the stability of exchange rate and the complete liquidity of capital cannot be realized at the same time, and at most, they can only meet two goals at the same time and give up the other.

II. Introduction

1 principle and ternary paradox are a famous conclusion in international economics. However, this theory is highly abstract, and only considers the extreme cases, that is, complete monetary policy independence, complete fixed exchange rate and complete free capital flow, and does not solve the intermediate situation.

2. As frankl pointed out, "there is no convincing evidence to explain why we can't give up half of the two goals of monetary policy independence and exchange rate stability, so as to achieve half of exchange rate stability and half of monetary policy independence." This can't be said to be the limitation of the "ternary paradox" theory in the analysis of specific target selection.

3. However, the current empirical analysis points out the existence of ternary paradox. According to Mundell's ternary paradox, there are three kinds of economic goals of a country: the independence of monetary policies of various countries; Stability of exchange rate; Complete liquidity of capital. Of these three, a country can only choose the second of the three, and it is impossible to have all three. For example, from 1944 to 197 1 in the Bretton Woods system.

4. "Monetary policy independence" and "exchange rate stability" have been achieved, but "capital flow" has been strictly restricted. After 1973, "independence of monetary policy" and "free flow of capital" were realized, and "exchange rate stability" no longer existed. The beauty of the "eternal triangle" is that it provides a way to divide various forms of the international economic system, which is clear at a glance.

5. According to the "ternary paradox" principle, the combination of free capital flow, fixed exchange rate system and monetary policy independence is a feasible choice, but the effective premise of this combination in reality is that it can only be established under the assumption that a country's foreign exchange reserves have no upper limit.