THE RELIABILITY OF THE MONETARY TRILEMMA THEORY ON THE EXAMPLE OF TRANSITION COUNTRIES

The purpose of this paper is to evaluate the reliability of the monetary trilemma theory in selected transition countries (Albania, Armenia, Russia, Serbia and Ukraine) in the period between 2007 and 2021. The paper tests the validity of the monetary trilemma theory, which implies that it is impossible to concurrently achieve exchange rate stability, independent monetary policy and financial integration, i.e. free capital flows. Bearing in mind that financial integrations represent a cornerstone of contemporary world functioning, the initial hypothesis is defined in such a way that the choice of a nation’s exchange rate arrangement affects the degree of its monetary policy autonomy. The validity of the monetary trilemma hypothesis was assessed by an intuitive linear regression model proposed by the authors Aizenman et al. (2013). However, the obtained results did not support the validity of the monetary trilemma theory on the example of the five analysed transition countries in the given period. This fact points to the conclusion that the choice of foreign exchange arrangement does not affect the level of the observed countries’ monetary policy independence.