Determinants of the Economic Position of Countries Within the Impossible Trinity

The impossible trilemma, or unholy trinity is the proposition that macroeconomic policy cannot simultaneously achieve a fixed exchange rate, independent monetary policy and perfect capital mobility. At the same time, countries occupy various, including intermediate positions within the impossible trinity, which can be shown using trilemma indicators, taking values ​​from 0 to 1, that were used in this work. Thus, the question arises as to which factors influence policy makers decisions about their trilemma intentions. The paper studies the dependence of the components of the trilemma of structural, macroeconomic and global factors. In addition, these differences are examined both using regression analysis and by identifying clusters of countries with similar values ​​of the trilemma indices, and then binary choice models (logistic regressions) are built to explain the membership of the economy in these clusters. The paper concludes that structural variables (economy size, per capita income, savings ratio, trade openness, terms of trade shocks and level of financial development) as well as macroeconomic policy variables (the ratio of public debt, foreign exchange reserves, and government spending to GDP, inflation volatility) have a significant impact on one or more components of the impossible trinity. Among global shocks, only changes in the US real interest rate can contribute to a reduction in monetary autonomy.