Managing the Trilemma: The MPC
The " impossibility trinity or trilemma” holds that monetary policy authorities cannot simultaneously and continuously follow the three objectives of free capital mobility, fixed exchange rates, and an independent monetary policy. And even if the exchange rate is allowed to float, monetary policy cannot be entirely independent of what is happening to the value of the rupee. The trilemma implies that an economy can enjoy capital inflows and an independent monetary policy so long at it gives up worrying about the appreciating exchange rate. It is impossible to have all three goals at a time.
