Trinities in Political Economy: More Than Just a Way of Observation

Abstract

In the recent economic discussion we observe more and more the use of so-called triangles or trinities of mutual exclusive options which at list pose trilemmas. The start was made with very famous impossible trinity, which nurtured generation of economists. After that came the so-called blessed and unblessed trinities, the peso and the dollarization trinity. With the appearance of the crises occurred diverse financial trinities, new trilemmas, monetary union trilemmas, and last but not least political economic and international trilemmas. Trinities have been used in the field of the monetary policy and exchange rate arrangements, in the international financial sector, in the Euro zone crisis, in the European banking union discussion, and in the field of the political economy. There are many trinities which entail many important trilemmas which make our life difficult. We believe, it is time to look at those triangles or trinities as a single unity, as a single methodology. We would like to understand their meaning, to investigate them systematically, to see if they are related together, last but not least we would like to discover the real message they are trying to convey. In order to do that, we classified the trilemmas in four groups, the first, second, and third generation trilemmas and as fourth group the political economy trilemmas. Our classification is not based on econometrics or other statistical methods. It is based on intuition and simple experience on how the financial sector was developed in the last decades. We must note that we will not consider all the possible trinities which have appeared occasionally but the most important. Therefore, after the introduction, in the first part of the paper we discuss the “first generation” of the trinities, those from the field of the international monetary and exchange rate theory, where we start with the classical impossible trinity, which seems to be the first one used in this kind of “methodology” and we continue with the “blessed and unblessed,” peso and dollarization trinities. In the second part we discuss the “second generation” of the trinities, those of the field of the international financial market, where we discuss the international financial trinity and holy trinity. In the third part of the paper, we investigate the “third generation” trinities, those that have been used to discuss the situation in the Euro zone after the crisis and we start with triangle with a new impossible trinity, the financial/fiscal trinity and the monetary trinity for EMU. In the fourth part of our paper, we discuss the triangles which are used in the field of the political economy and the international relation where we discuss a number of political trinities. Using this simple “methodology” we do not discover a “hidden” theory. No they don’t carry a “new theory” but they carry some strong message. From the theoretical point of view all the trinities are not very dissimilar to each other and nearly every one carry the same message, i.e., the importance of the monetary and financial sector and the problem the trilemmas express always has to do with the way the monetary and financial sector is combined with the others sectors in the economy. From the praxis point of view we discovered that the trinities should not be interpreted strictly because politicians and the authorities use the degree of freedom they have to choose the degree of capital transactions openness, the degree of exchange rate flexibility and that of the monetary independence?

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