Secondly, in a globalising world, the context in which monetary policy is set, often leads to a confrontation with the impossible trinity – independent monetary policy, open capital account and managed exchange rate. The theory holds that at best, only two out of the three would be feasible.
In practice, however, there is a shift in preference away from the corner solution with respect to financial imbalances. Currently, intermediate solutions, which were earlier regarded as “fuzzy”, are now becoming increasingly relevant.