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Macroeconomic Adjustment Under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis

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  • Bayoumi, Tamim
  • Eichengreen, Barry

Abstract

The authors analyze the comparative macroeconomic performance of the Bretton Woods System of pegged exchange rates and the post-Bretton Woods float. The change in volatility of prices and output following the shift to floating does not appear to have been associated with differences in underlying aggregate-supply and aggregate-demand shocks. Rather, under fixed rates, monetary policy had to be adjusted to stabilize the exchange rate, flattening the demand curve and thereby increasing the output response and reducing the price response to aggregate supply shocks. Following the shift to floating, monetary policy was freed, steepening the demand curve and increasing price volatility relative to output volatility. Copyright 1994 by Royal Economic Society.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt4gf4d2hc.

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Date of creation: 01 Aug 1992
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Handle: RePEc:cdl:econwp:qt4gf4d2hc

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Keywords: Bretton Woods; exchange rates; international adjustment; Social and Behavioral Sciences; Business;

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  1. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Michael D. Bordo, 1993. "The Bretton Woods International Monetary System: A Historical Overview," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 3-108 National Bureau of Economic Research, Inc.
  3. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
  4. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  5. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Is There a Conflict Between EC Enlargement and European Monetary Unification?," CEPR Discussion Papers 646, C.E.P.R. Discussion Papers.
  6. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-52, June.
  7. Marianne Baxter & Alan C. Stockman, 1988. "Business Cycles and the Exchange Rate System: Some International Evidence," NBER Working Papers 2689, National Bureau of Economic Research, Inc.
  8. Hans Genberg & Alexander Swoboda, 1993. "The Provision of Liquidity in the Bretton Woods System," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 269-316 National Bureau of Economic Research, Inc.
  9. Barry Eichengreen, 1992. "Three Perspectives on the Bretton Woods System," NBER Working Papers 4141, National Bureau of Economic Research, Inc.
  10. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  11. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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