Carlos Caceres, Mr. Yan Carriere-Swallow, and Bertrand Gruss
Is the Mundell-Fleming trilemma alive and well? International co-movement of asset prices takes
place alongside synchronized business cycles, complicating the identification of financial
spillovers and assessments of monetary policy autonomy. A benchmark for interest rate comovement
is to impose the null hypothesis that central banks respond only to the outlook for
domestic inflation and output. We show that common approaches used to estimate interest rate
spillovers tend to understate the degree of monetary autonomy enjoyed by small open economies
with flexible exchange rates. We propose an empirical strategy that partials out those spillovers
that are associated with impaired monetary autonomy. Using this approach, we revisit the
predictions of the trilemma and find more compelling evidence that flexible exchange rates deliver
monetary autonomy than prior work has suggested.
Thomas Elkjaer, Jannick Damgaard, and Emmanuel O. Kumah
This paper analyzes the seven valuation methods for unlisted direct investment equity included in the recently adopted IMF Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6). Based on publicly available Danish data, we test the three methods that are generally applicable and find that the choice of valuation method and estimation technique can have a highly significant impact on the international investment position, pointing to the need for further harmonization. The results show that the price-to-book value method generates more robust market value estimates than the price-to-earnings method. This finding suggests that the valuation basis for the forthcoming Coordinated Direct Investment Survey - own funds at book value -will provide useful information for compiling the international investment position.