Monetary Independence under Bretton Woods: Perspectives from a Stochastic, Maximizing Model

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Abstract. Research based on the Kouri-Porter model of international capital flows suggests that the central banks of nonreserve countries enjoyed considerable monetary independence during the Bretton Woods era. This paper is a theoretical and empirical reassessment of this conclusion. Using a stochastic, maximizing model, it is shown that the existence of imperfect asset substitutability does not guarantee monetary control. At the empirical level, the estimated offset coefficients for four industrialized countries are consistent with zero monetary independence.Independance monetaire dans la periode de Bretton-Woods: perspectives deriv&s d'un modHle de maximisation stochastique. Les recherches fond6es sur le modele Kouri-Porter des flux internationaux de capital suggerent que les banques centrales des pays dont les devises ne sont pas utilisees comme reserves ont joui d'une independance monetaire considerable au cours de la periode de Bretton-Woods. Ce memoire est une r66valuation th6orique et empirique de cette conclusion. En utilisant un modele de maximisation stochastique, on montre que l'existence d'une substituabilite imparfaite des actifs ne garantit pas le contr6le monetaire. Au niveau empirique, les coefficients de compensation estimes pour quatre pays industrialises semblent confirmer Y'hypothese d'ind6pendance zero.

Interest Rates, Exchange Rates and World Monetary Policy

“…6 This implies that κ was not significantly different from zero. 6 The first four countries are covered in [86] while the British case is covered in [87].…”

The Risk Premium, Interest Rate Determination, and Monetary Independence Under a Fixed, but Adjustable, Exchange Rate

“…In an empirical study on the extent of monetary independence under Bretton Woods, Pasula () uses the policy rule under regime B in the derivation of the reduced form for reserve flows. The empirical analysis allows for changes in the risk premium with any induced change in consumption caused by the exogenous variables (but the paper does not provide the explanation of this effect in terms of the induced change in the degree of risk aversion).…”

“…For empirical estimates of the offset coefficient that exceed 1 in absolute value, see Putnam and Wilford () and Pasula ().…”