Bretton Woods Regime Research Articles

Global monetary instability: The role of the IMF, the EU and NAFTA

This paper argues that the global monetary system has exhibited significant instability since the collapse of the Bretton Woods regime in 1971. The current challenge for economists and policy makers is the creation of a global monetary system that offers greater exchange rate stability without sacrificing international capital mobility. This paper proposes a solution that consists of three components. First, strengthening the international financial architecture to bring stability, primarily to emerging nations. Second, eventually creating a monetary union in NAFTA and extending it to other countries of the Western Hemisphere to bring stability to this region à la the European Monetary Union (EMU). Third, coordinating economic policies among the U.S., EU and Japan to stabilize these three key global currencies.

Holding International Reserves in an Era of High Capital Mobility

Why do countries hold so much international reserves? Global reserve holdings (excluding gold) were equivalent to 17 weeks of imports at the end of 1999. That is almost double what they were at the end of 1960 and about 20 percent higher than they were at the start of the 1990s. In this paper we study countries' reserve holdings in light of both the increased financial volatility experienced in the last decade and diminished adherence to fixed exchange rates. We find that buffer-stock reserve models work about as well in the modern floating-rate period as they did during the Bretton Woods regime. During both periods, however, the models' fundamentals explain only a small portion (10-15 percent) of reserves volatility.

Holding International Reserves in an Era of High Capital Mobility

Why do countries hold so much international reserves? Global reserve holdings (excluding gold) were equivalent to 17 weeks of imports at the end of 1999. That is almost double what they were at the end of 1960 and about 20 percent higher than they were at the start of the 1990s. In this paper we study countries’ reserve holdings in light of both the increased financial volatility experienced in the last decade and diminished adherence to fixed exchange rates. We find that buffer-stock reserve models work about as well in the modern floating-rate period as they did during the Bretton Woods regime. During both periods, however, the models’ fundamentals explain only a small portion (10-15 percent) of reserves volatility.

The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability

Using the longest dataset publicly available (The Economist's index of industrial commodity prices), we analyze the behavior of real commodity prices over the period 1862-99, and have two main findings. First, while there has been a downward trend in real commodity prices of 13 percent per year over the last 140 years, little support is found for a break in the long-run trend decline in commodity prices. Second, there is evidence of a ratcheting up in the variability of price movements. The amplitude of price movements increased in the early 1900s, while the frequency of large price movements increased after the collapse of the Bretton Woods regime of fixed exchange rates in the early 1970s. While there is a downward trend in real commodity prices, this is of little practical policy relevance as it is small and completely dominated by the variability of prices.

Holding International Reserves in an Era of High Capital Mobility

Why do countries hold so much international reserves? Global reserve holdings (excluding gold) were equivalent to 17 weeks of imports at the end of 1999. That is almost double what they were at the end of 1960 and about 20 percent higher than they were at the start of the 1990s. In this paper we study countries’ reserve holdings in light of both the increased financial volatility experienced in the last decade and diminished adherence to fixed exchange rates. We find that buffer-stock reserve models work about as well in the modern floating-rate period as they did during the Bretton Woods regime. During both periods, however, the models’ fundamentals explain only a small portion (10-15 percent) of reserves volatility.

The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability

Using the longest dataset publicly available (The Economist's index of industrial commodity prices), we analyze the behavior of real commodity prices over the period 1862-99, and have two main findings. First, while there has been a downward trend in real commodity prices of 1.3 percent per year over the last 140 years, little support is found for a break in the long-run trend decline in commodity prices. Second, there is evidence of a ratcheting up in the variability of price movements. The amplitude of price movements increased in the early 1900s, while the frequency of large price movements increased after the collapse of the Bretton Woods regime of fixed exchange rates in the early 1970s. While there is a downward trend in real commodity prices, this is of little practical policy relevance as it is small and completely dominated by the variability of prices.

The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability

Using the longest dataset publicly available (The Economist's index of industrial commodity prices), we analyze the behavior of real commodity prices over the period 1862-99, and have two main findings. First, while there has been a downward trend in real commodity prices of 13 percent per year over the last 140 years, little support is found for a break in the long-run trend decline in commodity prices. Second, there is evidence of a ratcheting up in the variability of price movements. The amplitude of price movements increased in the early 1900s, while the frequency of large price movements increased after the collapse of the Bretton Woods regime of fixed exchange rates in the early 1970s. While there is a downward trend in real commodity prices, this is of little practical policy relevance as it is small and completely dominated by the variability of prices.

Institutional Coherence between WTO and IMF: From the Perspective of the Trade Institution

The intertwined relationship between international financial institutions such as the IMF or the World Bank and international trade institutions such as the GATT and the WTO has become by far closer and more complex than ever. In particular, when the roles of the IMF and the World Bank have increased as a result of the recent financial and exchange crisis that swept over the substantial part of the world economy, the new Bretton Woods regime within which it now embraces the WTO has raised a serious concern on coherence and harmonization with respect to the areas of overlapping functions and mandates. The recent agreement between the IMF and the WTO can be considered an important advance in this endeavor as the first outcome to formalize the institutional coherence. The substance of the agreement, however, reveals the lack of the structural mechanism to address various coherence issues. I hope that the present review and discussion can initiate more in-depth research and contemplation for this agenda that would benefit future efforts in the IMF or in a new trade negotiation under the aegis of the WTO.

WTOO IMFFF : (Institutional Coherence Between WTO and IMF: From the Perspective of the Trade Institution)

Korean Abstract: IMF와 World Bank로 대표되는 국제금융기구와 GATT 및 현재 WTO로 대표되는 국제무역기구간의 연계가 세계경제 역사상 어느 시기보다 복잡하고 다원화되어가고 있다. 톡히, 세계경제 에 심대한 영향을 끼친 금옹 및 외환위기의 극복과정에서 보여진 IMF의 역할 중가는 WTO의 설립으로 이루게 된 ‘新브레론우즈체제’하에서 국제무역기구와 금융기구간 조화와 연계를 어떠한 방식으로 확립하느냐 하는 문제를 보다 시급한 과제로 대두시키고 있다. 이러한 차원에서 WTO-IMF 온 최초로 양 체제간 연계를 공식화하였으며，또한 양 체제의 양립문제에 대한 기구적 차원에서의 노력율 가시화하였다는 점에서 중요한 진전을 대변하는 성과이다. 그러나, 현단계의 WTO-IMF 협정은 그 내용면에서 기구적인 연계에 대한 실질적인 제도적 장치나 규범을 제시하지 못하고 있다. 따라서, 그러한 한계점에 대한 논의와 본고에서 추가적으로 제기하는 체제적 문제들에 대한 보다 심도있는 연구가 이어져, 향후 WTO체제하의 다자간 협상 또는 IMF차원에서의 공식적인 보완 노력에 기틀이 마련될 수 있기를 바란다. English Abstract: The intertwined relationship between international financial institutions such as the IMF or the World Bank and international trade institutions such as the GATT and the WTO has become by far closer and more complex than ever. In particular, when the roles of the IMF and the World Bank have increased as a result of the recent financial and exchange crisis that swept over the substantial part of the world economy, the new Bretton Woods regime within which it now embraces the WTO has raised a serious concern on coherence and harmonization with respect to the areas of overlapping functions and mandates. The recent agreement between the IMF and the WTO can be considered an important advance in this endeavor as the first outcome to formalize the institutional coherence. The substance of the agreement, however, reveals the lack of the structural mechanism to address various coherence issues. I hope that the present review and discussion can initiate more in-depth research and contemplation for this agenda that would benefit future efforts in the IMF or in a new trade negotiation under the aegis of the WTO.

Common Trends and Cycles in European Industrial Production: Exchange Rate Regimes and Economic Convergence

We analyse monthly data on six European industrial production series to ascertain the presence of common cycles and trends. Particular attention is paid to the exchange rate regime, with the Bretton Woods and Exchange Rate Mechanism (ERM) regimes being analysed separately. We employ recently developed techniques in vector autoregressive (VAR) modelling (a) to test for and estimate both common trends and common cycles, (b) to estimate VAR models subject to these ‘common feature’ restrictions, (c) to compare and contrast these models with those obtained from an alternative approach, that of estimating unrestricted levels VAR models, and (d) to present a permanent–transitory decomposition of the series that is based on the common trends found in the systems. We find limited evidence of convergence during the ERM, and this is of a long‐run nature. In the short run, asymmetric shocks seem to have produced a divergence compared with the earlier Bretton Woods regime. There is also some evidence of German ‘leadership’ over Belgium, France and the Netherlands.

Managing the World Economy: Fifty Years after Bretton Woods

The Group of Seven major industrial democracies, at their Naples summit in July 1994, decided to consider What framework of institutions will be required to meet the challenges of the 21st century? and How can we adapt existing institutions and build new institutions to ensure the future prosperity and security of our people? This volume presents the results of an Institute conference at which leading experts and policymakers assessed the record of the Bretton Woods regime over the past half century and the need to modernize the system now. Specific proposals are made for reforming the international monetary and trading systems, including through changes in the roles of the International Monetary Fund, GATT and the New World Trade Organization, and the World Bank. The volume also assesses the case for creating new institutional arrangements to address several issues that have recently attained greater prominence on the global agenda--investment, financial markets, the environment, and migration.

Globalization: Myths and Realities1

Abstract The current decline of the developmentalist paradigm, and its view of the rural as increasingly residual, revitalizes rural sociology. The blossoming of studies of rurality and ecology is paralleled by the growing currency of globalization as an object of analysis. This is more than a coincidence—in fact, globalization crystallizes local diversity. The two phenomena go hand in hand. But each needs to be understood as an historical construct; that is, they need to be problematized. In problematizing “globalization,” I argue that it must be understood as a post‐developmentalist construct. The postwar goal of national development, institutionalized in the international Bretton Woods regime, has run its course—dramatized by the assault on developmentalist states and institutions in the monetarist regime established under the auspices of the 1980s debt crisis. The nationally oriented institutions of the developmentalist era are now being replaced by globally oriented institutions under the legitimizing cloak of efficiency and financial credibility. Related to this trend, producing communities scramble to reposition themselves either through finding niches in a new global economy or through resistance to global pressures. Either way, there is a new emphasis on defining the local. This article explores the conjunction of global and local definition.

The Historical Development of the Principle of Surveillance

The article discusses the evolution of surveillance from the rules-based Bretton Woods regime to the multilateral surveillance of the IMF, the G-5 and G-7 Finance Ministers, and the G-7 summit. The creation of a mechanism for collecting and analyzing data and providing forecasts through the World Economic Outlook exercise allowed a formulation of a policy response to the economic shocks of the 1970s and 1980s. James argues that the supply of information came to play a central role in guiding choices on economic policy; and that publicly available information is critical if market panics and crises are to be avoided.

Dollar Bloc Dependency in Latin America: Beyond Bretton Woods

The international financial regime is undergoing a significant transition as the Bretton Woods regime weakens and new norms and principles emerge. One change is the emergence of “currency blocs” which serve to stabilize regional financial relations. This paper argues that Latin America and the U.S. are linked in an emerging dollar bloc that has created a new form of Latin American dependency. The centrality of the dollar in the financial structure of Latin America is documented, and an overview of the historical currency blocs, the sterling and franc blocs, is provided. This historical treatment provides the basis for an analysis of the mechanisms and operation of the dollar bloc and for an assessment of the current factors in its evolution. Three specific issues are investigated: the adjustments to the rules and decision-making in the dollar bloc that are currently in progress, the relation of the dollar bloc to the re-democratization of Latin America, and the international financial context provided by the European Monetary System and the growth in the yen's importance.

Export expansion and economic growth

In order to give a more precise idea of this empirical law, we shall now present some results of our most recent empirical analysis. This has been done for 19 industrialized market economies, for the period 1960-1984. The period has been subdivided, into three sub-periods: 1960-1967, the last years of the Bretton Woods regime, 1967-1974, the years of the collapse of such a regime and of the upsurge of inflation, 1974-1984, the years after the oil crisis.

The Portfolio-Balance Model of Exchange Rates

Since the collapse of the Bretton Woods regime, models of asset-stock equilibrium have dominated professional thinking about exchange-rate determination. A number of empirical investigations have established that changes in relative stocks of money explain a considerable portions of the behavior of echange rates. It has also been established, however, that persistant deviations from purchasing-power parity weaken the links between exchange rates and relative stocks of money in the shorts run, and that relative rates of money growth by themselves do a poor job of explaining the behavior of exchange rates since late 1975, when real economic growth in the United States recovered to a rate of exceeded and continued to outpace growth rates in other industrialized countries.

Incomes policy – Danish style

In the post-war period, under the Bretton Woods regime of fixed exchange rates, Danish economic policy followed a zigzag course. With employment low and balance-of-payments satisfactory, expansionary measures were taken. However, once expansion had gathered momentum the threat of balance-of-payments deficit re-emerged and the process was reversed, resulting in a rise in unemployment. In an attempt to explain this phenomenon the Radical Party proposed the “income-race theory”, suggesting a need for co-ordination of group interests in order to achieve financial stability and a just distribution of income. The present work analyses the income-race theory and the establishment of the Council for Economic Coordination that it inspired. The author considers the Council’s scope, its policy recommendations and their impact in resolving Denmark’s incomes policy problem.