Beyond the Trilemma: How Hybrid Exchange Rate Regimes and Segmented Capital Flows Reconfigure Monetary Autonomy in Emerging Markets

The classical monetary trilemma implies a binding trade-off among exchange rate stability, capital mobility, and monetary autonomy. Yet, emerging market economies increasingly operate hybrid policy configurations that depart systematically from the trilemma’s corner solutions. This paper proposes a continuous, time-varying measure of such departures—the Hybridity of Regime Index (HRI)—extracted via a dynamic factor model from sub-indices capturing exchange rate hybridity, capital account segmentation, and effective monetary autonomy for a balanced panel of thirty emerging markets over the period 2005–2024. The analysis yields four principal findings. First, a secular increase in average regime hybridity is observed, with a marked acceleration following the financial fragmentation shocks of 2022. Second, moderate hybridity is associated with attenuated output and inflation volatility, and local projections show that high-HRI economies experience milder output contractions in the immediate aftermath of global financial shocks. Third, panel threshold regressions identify an endogenous HRI level beyond which the stabilizing effect reverses: further hybridity amplifies macroeconomic volatility and erodes reserve adequacy. Fourth, the post-2022 geopolitical fragmentation of the international monetary system has amplified the pre-existing trend toward hybridity, with sanction-affected economies exhibiting discontinuous jumps in HRI that push them into the high-vulnerability regime. This paper characterizes this non-linear pattern as a resilience–vulnerability nexus and discusses its implications for early warning indicators and for the assessment of policy responses to the fragmentation of the international monetary system.