IDEAS home Printed from https://ideas.repec.org/p/iie/wpaper/wp14-5.html
   My bibliography  Save this paper

The Federal Reserve Engages the World (1970-2000): An Insider's Narrative of the Transition to Managed Floating and Financial Turbulence

Author

Listed:
  • Edwin M. Truman

    (Peterson Institute for International Economics)

Abstract

This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve's role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.

Suggested Citation

  • Edwin M. Truman, 2014. "The Federal Reserve Engages the World (1970-2000): An Insider's Narrative of the Transition to Managed Floating and Financial Turbulence," Working Paper Series WP14-5, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp14-5
    as

    Download full text from publisher

    File URL: https://www.piie.com/publications/working-papers/federal-reserve-engages-world-1970-2000-insiders-narrative-transition
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brayton, Flint & Levin, Andrew & Lyon, Ralph & Williams, John C., 1997. "The evolution of macro models at the Federal Reserve Board," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 47(1), pages 43-81, December.
    2. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, October.
    3. Bordo, Michael D. & Orphanides, Athanasios (ed.), 2013. "The Great Inflation," National Bureau of Economic Research Books, University of Chicago Press, number 9780226066950, December.
    4. Peter Hooper & Catherine L. Mann, 1987. "The U.S. external deficit: its causes and persistence," Proceedings, Federal Reserve Bank of St. Louis, pages 3-127.
    5. Dooley, Michael & Helkie, William & Tryon, Ralph & Underwood, John, 1986. "An analysis of external debt positions of eight developing countries through 1990," Journal of Development Economics, Elsevier, vol. 21(2), pages 283-318, May.
    6. Tamim Bayoumi & Andrew Swiston, 2009. "Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 353-383, June.
    7. International Monetary Fund, 2010. "Deconstructing the International Business Cycle: Why does a U.S. sneeze give the rest of the world a cold?," IMF Working Papers 2010/239, International Monetary Fund.
    8. Joseph E. Gagnon & Paul R. Masson & Warwick J. McKibbin, 2019. "German Unification: What Have We Learned from Multi-Country Models?," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 4, pages 101-140, World Scientific Publishing Co. Pte. Ltd..
    9. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15, October.
    10. Jay H. Bryson, 1993. "Macroeconomic stabilization through monetary and fiscal policy coordination: implications for European Monetary Union," International Finance Discussion Papers 453, Board of Governors of the Federal Reserve System (U.S.).
    11. Michael D. Bordo & Athanasios Orphanides, 2013. "The Great Inflation: The Rebirth of Modern Central Banking," NBER Books, National Bureau of Economic Research, Inc, number bord08-1, March.
    12. Richard Berner & Peter K. Clark & Howard Howe & Sung Y. Kwack & Guy V. G. Stevens, 1975. "Simultaneous determination of the U.S. balance of payments and exchange rates: an exploratory report," International Finance Discussion Papers 59, Board of Governors of the Federal Reserve System (U.S.).
    13. C. Randall Henning, 1999. "Exchange Stabilization Fund: Slush Fund or War Chest?, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa57, October.
    14. Adams, Gwyn & Alexander, Lewis & Gagnon, Joseph, 1993. "German unification and the European Monetary System: A quantitative analysis," Journal of Policy Modeling, Elsevier, vol. 15(4), pages 353-392, August.
    15. Michael Bordo & Barry Eichengreen, 2013. "Bretton Woods and the Great Inflation," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 449-489, National Bureau of Economic Research, Inc.
    16. Peter B. Clark, 1974. "The effects of recent exchange rate changes on the U.S. trade balance," International Finance Discussion Papers 52, Board of Governors of the Federal Reserve System (U.S.).
    17. Catherine L. Mann, 1999. "Is the U.S. Trade Deficit Sustainable?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 47, October.
    18. Peter Hooper & Barbara R. Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," Staff Studies 103, Board of Governors of the Federal Reserve System (U.S.).
    19. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    20. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    21. Charles J. Siegman, 1994. "The Bank for International Settlements and the Federal Reserve," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 900-906.
    22. Helen B. Junz, 1973. "Balance of payments aims and structures in the 1970s," International Finance Discussion Papers 38, Board of Governors of the Federal Reserve System (U.S.).
    23. B. Dianne Pauls, 1990. "U.S. exchange rate policy: Bretton Woods to present," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 891-908.
    24. Kamin, Steven B. & Rogers, John H., 1996. "Monetary policy in the end-game to exchange-rate based stabilizations: the case of Mexico," Journal of International Economics, Elsevier, vol. 41(3-4), pages 285-307, November.
    25. Schenk,Catherine R., 2013. "The Decline of Sterling," Cambridge Books, Cambridge University Press, number 9781107612990.
    26. Mico Loretan, 2005. "Indexes of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 91(Win), pages 1-8.
    27. David H. Howard, 1989. "The United States as a heavily indebted country," International Finance Discussion Papers 353, Board of Governors of the Federal Reserve System (U.S.).
    28. Steven B. Kamin, 1996. "Real exchange rates and inflation in exchange-rate based stabilizations: an empirical examination," International Finance Discussion Papers 554, Board of Governors of the Federal Reserve System (U.S.).
    29. Richard Berner & Peter K. Clark & Ernesto Hernandez-Cata & Howard Howe & Sung Y. Kwack & Guy V. G. Stevens, 1977. "A multi-country model of the international influences on the U.S. economy: preliminary results," International Finance Discussion Papers 115, Board of Governors of the Federal Reserve System (U.S.).
    30. Michael P. Leahy, 1998. "New summary measures of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 84(Oct), pages 811-818, October.
    31. Helkie, W.L. & Hooper, P., 1989. "U.S. External Adjustment: Progress And Prospects," Papers 71, Brookings Institution - Working Papers.
    32. Barry Eichengreen, 2013. "Does the Federal Reserve Care about the Rest of the World?," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 87-104, Fall.
    33. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346, October.
    34. Caroline L. Freund, 2000. "Current account adjustment in industrialized countries," International Finance Discussion Papers 692, Board of Governors of the Federal Reserve System (U.S.).
    35. Peter Isard, 1977. "The process of exchange-rate determination: a survey of important models and major issues," International Finance Discussion Papers 101, Board of Governors of the Federal Reserve System (U.S.).
    36. B. Dianne Pauls, 1987. "Measuring the foreign-exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 411-422.
    37. Peter Hooper & Barbara R. Lowrey, 1979. "Impact of the dollar depreciation on the U.S. price level: an analytical survey of empirical estimates," International Finance Discussion Papers 128, Board of Governors of the Federal Reserve System (U.S.).
    38. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
    39. Edwin M. Truman, 2012. "John Williamson and the Evolution of the International Monetary System," Working Paper Series WP12-13, Peterson Institute for International Economics.
    40. Nathan Sheets, 1995. "Capital flight from the countries in transition: some theory and empirical evidence," International Finance Discussion Papers 514, Board of Governors of the Federal Reserve System (U.S.).
    41. Margaret L. Greene, 1984. "U.S. experience with exchange market intervention: January-March 1975," Staff Studies 127, Board of Governors of the Federal Reserve System (U.S.).
    42. Raymond Lubitz, 1978. "The Italian economic crises of the 1970's," International Finance Discussion Papers 120, Board of Governors of the Federal Reserve System (U.S.).
    43. Mr. Tamim Bayoumi & Mr. Trung T Bui, 2012. "Global Bonding: Do U.S. Bond and Equity Spillovers Dominate Global Financial Markets?," IMF Working Papers 2012/298, International Monetary Fund.
    44. Arthur F. Burns, 1978. "Reflections of an Economic Policy Maker," Books, American Enterprise Institute, number 725136, September.
    45. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-125, May.
    46. Peter Hooper & John E. Morton, 1978. "Summary measures of the dollar's foreign exchange value," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 783-789.
    47. Paul L. Volcker, 1980. "The Recycling Problem Revisited," Challenge, Taylor & Francis Journals, vol. 23(3), pages 3-14, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sean Fahle & Jaime R. Marquez & Charles P. Thomas, 2008. "Measuring U.S. international relative prices: a WARP view of the world," International Finance Discussion Papers 917, Board of Governors of the Federal Reserve System (U.S.).
    2. Michael D. Bordo & Owen F. Humpage, 2014. "Federal Reserve Policy and Bretton Woods," NBER Working Papers 20656, National Bureau of Economic Research, Inc.
    3. Owen F. Humpage & Sanchita Mukherjee, 2013. "Even keel and the Great Inflation," Working Papers (Old Series) 1315, Federal Reserve Bank of Cleveland.
    4. He, Dong & Yu, Xiangrong, 2016. "Network effects in currency internationalisation: Insights from BIS triennial surveys and implications for the renminbi," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 203-229.
    5. Michael D. Bordo & Robert N. McCauley, 2019. "Triffin: Dilemma or Myth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(4), pages 824-851, December.
    6. Menzie D. Chinn, 2005. "Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations," NBER Working Papers 11719, National Bureau of Economic Research, Inc.
    7. Bussière, Matthieu & Ca' Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2010. "Methodological advances in the assessment of equilibrium exchange rates," Working Paper Series 1151, European Central Bank.
    8. Linda S Goldberg, 2009. "Understanding Banking Sector Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 171-197, April.
    9. Philippe Bacchetta & Eric van Wincoop, 2010. "Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle," American Economic Review, American Economic Association, vol. 100(3), pages 870-904, June.
    10. Monnet, Eric & Puy, Damien, 2020. "Do old habits die hard? Central banks and the Bretton Woods gold puzzle," Journal of International Economics, Elsevier, vol. 127(C).
    11. Rogoff, Kenneth S. & Tashiro, Takeshi, 2015. "Japan’s exorbitant privilege," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 43-61.
    12. McCauley, Robert N., 2015. "Does the US dollar confer an exorbitant privilege?," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 1-14.
    13. Devereux, Michael B. & Saito, Makoto & Yu, Changhua, 2020. "International capital flows, portfolio composition, and the stability of external imbalances," Journal of International Economics, Elsevier, vol. 127(C).
    14. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E. & Wongswan, Jon, 2014. "Uncovered Equity Parity and rebalancing in international portfolios," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 86-99.
    15. Maurice Obstfeld, 2013. "The International Monetary System: Living with Asymmetry," NBER Chapters, in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 301-336, National Bureau of Economic Research, Inc.
    16. Pablo Pincheira & Jorge Selaive, 2011. "External imbalance, valuation adjustments and real Exchange rate: evidence of predictability in an emerging economy," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 26(1), pages 107-125, Junio.
    17. Pierre-Olivier Gourinchas & Hélène Rey & Maxime Sauzet, 2019. "The International Monetary and Financial System," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 859-893, August.
    18. Stefan Angrick, 2018. "Structural conditions for currency internationalization: international finance and the survival constraint," Review of International Political Economy, Taylor & Francis Journals, vol. 25(5), pages 699-725, September.
    19. Christian Grisse & Thomas Nitschka, 2016. "Exchange Rate Returns and External Adjustment: Evidence from Switzerland," Open Economies Review, Springer, vol. 27(2), pages 317-339, April.
    20. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011. "Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies," The World Economy, Wiley Blackwell, vol. 34(9), pages 1557-1592, September.

    More about this item

    Keywords

    Federal Reserve; Federal Open Market Committee; inflation; macroeconomic policies; monetary policy; external balance; exchange rates; exchange market intervention; financial crises; third world debt crises; Mexican crisis; Asian financial crises;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp14-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peterson Institute webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/iieeeus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.