A Retrospective on the Bretton Woods system by Michael D. Bordo, Barry Eichengreen

By Michael D. Bordo, Barry Eichengreen

At the shut of the second one international warfare, while industrialized international locations confronted severe alternate and fiscal imbalances, delegates from forty-four international locations met in Bretton Woods, New Hampshire, so one can reconstruct the overseas financial procedure. during this quantity, 3 generations of students and coverage makers, a few of whom participated within the 1944 convention, contemplate how the Bretton Woods approach contributed to remarkable financial balance and swift development for 25 years and speak about the issues that plagued the procedure and ended in its eventual cave in in 1971. The individuals discover adjustment, liquidity, and transmission below the process; how it affected constructing nations; and the function of the foreign financial Fund in keeping a reliable cost. The authors study the explanations for the System's luck and eventual cave in, evaluate it to next financial regimes, reminiscent of the eu financial approach, and deal with the potential for a brand new mounted trade price for modern day global.

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Dollar, as employed by Rose (1994), following the logic that the American currency has served more as a global currency than has the German mark. S. S. dollar, at least since the late 1970s. Thus, we clearly need to measure national exchange rate variability relative to a broad basket of external currencies. One obvious possibility would be to create a trade-weighted and capitalweighted measure of national currency variability. In practice, however, such a measure is problematic to construct for at least two reasons.

1. Measuring External Monetary Convergence To measure the extent of external monetary convergence and its converse, domestic monetary autonomy, I propose an operational indicator from the ‹eld of open-economy macroeconomics. 7 7. Rose (1994, 30) presented a continuous-time version of uncovered interest parity. Here I present the discrete-time equivalent. 1) is known as uncovered interest parity, where ∆e is a measure of exchange rate movements, i represents the domestic interest rate, and i * represents the prevailing external, or world, interest rate.

For example, faced with an economic decline and societal demands for more growth and employment, governments might desire to lower interest rates to stimulate economic activity. Alternatively, in an economy with rising prices and societal demands for domestic price stability, governments might like to raise interest rates to reduce in›ationary pressures. While there are certainly limits to what governments may be able to achieve domestically with interest rate changes, especially if market actors anticipate such changes in advance, democratic governments nonetheless perceive monetary policy independence as potentially desirable in at least the short to medium term.

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