A Brief Discussion of the Effectiveness of Monetary Policy in a Fixed Exchange Rate System With Perfect Capital Mobility and an Analysis of the “Impossible Trinity” Thesis

The purpose of this essay is to discuss the effectiveness of monetary policy in a fixed exchange rate system with perfect capital mobility and an analysis of the Impossible Trinity thesis, with the IS-LM-BP framework. Section 1 analyses the implications of capital mobility. Section 2 explains the IS-LM model framework. Section 3 analyse the balance of payments. Section 4 discusses the relationship between the balance of payments and the monetary accounts. Section 5 discusses the implications of monetary policy with perfect capital mobility. Section 6 discusses the monetary policy effectiveness and conclusions