Predicting economic movements in impoverished economies is a daunting task. It becomes even more challenging when an economy opts to give up independent monetary policy for pegged exchange regime and nearly free capital movement with the economy that commands nearly two-third of the total foreign trade.
As shown by the Mundell–Fleming model, which is often called the ‘Impossible Trinity’, an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. Yes, undoubtedly, I am talking about economic dynamics of Nepal and India. As the leaders continue to breed political mess in name of taking the ongoing peace process to a logical end and bringing a federal democratic constitution, yet another unexpected, though positive, development has surfaced and this time in the county’s balance of payment (BOP).
As shown by the Mundell–Fleming model, which is often called the ‘Impossible Trinity’, an economy cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. Yes, undoubtedly, I am talking about economic dynamics of Nepal and India. As the leaders continue to breed political mess in name of taking the ongoing peace process to a logical end and bringing a federal democratic constitution, yet another unexpected, though positive, development has surfaced and this time in the county’s balance of payment (BOP).
