Abstract

The open economy trilemma states that a country cannot simultaneously pursue monetary stabilisation, fix its exchange rate and maintain an open capital account. In this presentation I will first discuss how Qatar experimented policy solutions around the trilemma while maintaining its exchange rate fixed during the 2008 global financial crisis, with money market rate collapsing near the zero lower bound and inflation reaching record high rate in recent history. Second, I will analyse how stabilisation policy evolved in response to the current political crisis in the Gulf, focusing on how Qatar has so far been dealing with an economic blockade imposed on it by three neighboring countries in addition to the boycott by Egypt. Effective policy responses rest on understanding how this blockade is impacting the economy, by identifying the areas of major exposure as well as potential sources of strength.