The Debate About the Revived Bretton‐woods Regime: A Survey and Extension of the Literature

Abstract

This paper surveys the literature dealing with the thesis put forward by Dooley, FolkertsLandau and Garber (DFG) that the present constellation of global exchange-rate arrangements constitutes a revived Bretton-Woods regime. DFG also argue that the revived regime will be sustainable, despite its large global imbalances. While much of the literature generated by DFG's thesis points to specific differences between the earlier regime and revived regime that render the latter unstable, we argue that an underlying similarity between the two regimes renders the revived regime unstable. Specifically, to the extent that the present system constitutes a revived Bretton-Woods system, it is vulnerable to the same set of destabilizing forces --including asset price bubbles and global financial crises --that marked the latter years of the earlier regime, leading to its breakdown. We extend the Markov switching model to examine the relation between global liquidity and commodity prices. We find evidence of commodity-price bubbles in both the latter stages of the earlier Bretton-Woods regime and the revived regime.

Gold and inflation: Expected inflation effect or carrying cost effect?

“…Consistent with previous studies, we use gold prices denominated in USD from the afternoon fixing of the London gold market (Batten et al, 2014;Beckmann & Czudaj, 2013;Hoang et al, 2016). This decision is motivated by the strong historical link between gold prices in London (quoted in USD) and the USD rate from the Bretton Woods gold exchange system (Hall & Tavlas, 2013). Inflation expectation is derived from the Survey of Consumer Attitudes and Behavior conducted by the University of Michigan Survey Research Center, which has been available each month since January 1978.…”

New Perspectives on the Great Depression: A Review Essay

“…Specifically, as foreign central banks accumulated US dollar reserves, the United States came under the threat of a convertibility crisis. To address this threat, in the late‐1960s and early‐1970s the US government and the Federal Reserve took a series of measures that had the effect of severing all links between the dollar and gold (see Hall and Tavlas , p. 343). However, those actions transformed the international monetary system from a commodity‐based system to a fiat‐money system.…”

“…The Bretton Woods System failed for fundamental reasons related to fixed‐but‐adjustable exchange rate regimes; in the absence of capital controls, such regimes invite speculative attacks, which lead to their breakdown . In the case of the Bretton Woods fixed‐but‐adjustable regime, expansionary monetary policy by the Federal Reserve, accompanied by the unwillingness of countries such as Germany, Japan and Switzerland to import US inflation, led to its collapse (Meltzer , Bordo , Hall and Tavlas , Steil ). Specifically, as foreign central banks accumulated US dollar reserves, the United States came under the threat of a convertibility crisis.…”

The International Monetary System: Living with Asymmetry

“…That hypothesis led to a lively debate. For examples of the critiques see Roubini (2006), Obstfeld and Rogoff (2007), Wolf (2008), and Hall and Tavlas (2011).…”