Others have even claimed that in major advanced economies exchange rates are a source of macroeconomic fluctuations.22 For example, Hyun Shin and co-authors have argued that exchange rates can contribute to the global financial cycle by reducing the perceived credit risk in countries experiencing capital inflows, only to precipitate crises when flows reverse and credit risk soars.23 Moreover, even the traditional trilemma arguing that exchange rate flexibility is a sufficient condition for monetary policy autonomy under the assumption of globalised financial markets is not as robust as we thought.
Hélène Rey has recently argued that in the presence of largely unrestricted capital flows driven by a global financial cycle, flexible exchange rates are not a sufficient condition for monetary independence.24 As result, the ‘trilemma’ in international macroeconomics may have grown smaller and become a dilemma. This, as such, does not question the usefulness of flexible exchange rates.