A Study On The Trilemma In China And Its Impact On Macroeconomics In Open Economy

By constructing the MS-VAR model under the framework of trilemma,this paper examines China's trilemma policy combination of ‘exchange rate stability,monetary policy independence,capital openness' from the first quarter of 1998 to the second quarter of 2016,and explores the relationship of three policy objectives and their impacts on economic growth.This paper finds that the trilemma in China is that under the fixed exchange rate system,the limited flow of capital has reduced the independence of monetary policy to a certain extent.Thus,the choice of China's economic policy combination is becoming more and more intermediate,that is nearly fixed exchange rate system,limited effective monetary policy independence and limited capital flow.In addition,after 2010,the flexibility of China's exchange rate system has been increasing,the interest rate transmission mechanism has been gradually established,and the financial market has developed rapidly.Trilemma policy combination began to have more impacts on the economic growth.