The open economy trilemma in Latin America: A three‐decade analysis

Abstract

AbstractThis study concerns the open economy trilemma in emerging economies, and uses a panel data framework to investigate cross‐dependence among the countries and respective parameters of the 23 countries in Latin America from 1980 to 2010. We examine the impact that trilemma choices impose on economic performance (output volatility and inflation), as well as whether the adoption of inflation targeting influences the results. The findings indicate that promoting exchange rate stability and financial openness are efficient strategies for improving the economic performance of Latin America economies. Furthermore, the adoption of inflation targeting enhances the effects of financial openness on output volatility.