 Ask Dr Econ (answers
to public inquiries)
 Economic Letters (essays on current topics)
 FedViews (monthly
national economic forecast)
 What is the Fed? (general information about the Fed)
 Crisis & Response (the financial crisis and the Fed
response)
 Federal Reserve Centennial (100 Years of Federal Reserve
History)
A central result in open economy macroeconomics, first clarified by Mundell and Fleming, is that a country cannot simultaneously opt for
1) open financial markets (Free Capital Mobility)
2) fixed exchange rates (Peg)
3) effective monetary policy (Monetary Autonomy)
Rather, the country is constrained to choosing two of these three. The Impossible Trinity is also sometimes called the "Trilemma" since it is a choice among three favourable options, only two of which are possible at the same time.
In the real world policy this simply means "a country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like [the currency board regimes in Hong Kong today or Argentina in the 1990s]). Source
At the 10th anniversary of the British refusal to join the Euro, we have access to first hand accounts and the background research that drove the UK's decision. It is interesting to see how detailed the economic background information was that drove the discussion. Simon Wren-Lewis comments on the academic perspective and David Ramsden discusses the UK treasury view (careful Ramsden's video is looong and wonkish).
