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A Stable International Monetary System Emerges: Inflation Targeting is Bretton Woods, Reversed

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Andrew K. Rose

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Abstract

A stable international monetary system has emerged since the early 1990s. A large number of industrial and a growing number of developing countries now have domestic inflation targets administered by independent and transparent central banks. These countries place few restrictions on capital mobility and allow their exchange rates to float. The domestic focus of monetary policy in these countries does not have any obvious international cost. Inflation targeters have lower exchange rate volatility and less frequent “sudden stops” of capital flows than similar countries that do not target inflation. Inflation targeting countries also do not have current accounts or international reserves that look different from other countries. This system was not planned and does not rely on international coordination. There is no role for a center country, the IMF, or gold. It is durable; in contrast to other monetary regimes, no country has been forced to abandon an inflation-targeting regime. Succinctly, it is the diametric opposite of the post-war system; Bretton Woods, reversed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12711.

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Date of creation: Nov 2006
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Handle: RePEc:nbr:nberwo:12711

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F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. WenShwo Fang & Stephen M. Miller & ChunShen Lee, 2009. "Inflation Targeting Evaluation: Short-run Costs and Long-run Irrelevance," Working papers 2009-14, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  2. Joshua Aizenman & Michael Hutchison & Ilan Noy, 2008. "Fiscal Storms: Inflation Targeting and Real Exchange Rates in Emerging Markets," Working Papers 200810, University of Hawaii at Manoa, Department of Economics. [Downloadable!]
  3. Mark M. Spiegel, 2008. "Financial globalization and monetary policy discipline," Working Paper Series 2008-10, Federal Reserve Bank of San Francisco. [Downloadable!]
  4. Joshua Aizenman & Michael Hutchison & Ilan Noy, 2008. "Inflation Targeting and Real Exchange Rates in Emerging Markets," NBER Working Papers 14561, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Mihov, Ilian & Rose, Andrew K, 2007. "Is Old Money Better than New? Duration and Monetary Regimes," CEPR Discussion Papers 6529, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. David Laidler, 2007. "Better Late Than Never: Towards a Systematic Review of Canada's Monetary Policy Regime," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 252, July. [Downloadable!]
  7. Greg Tkacz, 2007. "Gold Prices and Inflation," Working Papers 07-35, Bank of Canada. [Downloadable!]
  8. Michael W. Klein & Jay C. Shambaugh, 2006. "The Nature of Exchange Rate Regimes," NBER Working Papers 12729, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Joshua Aizenman, 2007. "Large Hoarding of International Reserves and the Emerging Global Economic Architecture," NBER Working Papers 13277, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. George M. von Furstenberg, 2007. "Aspects, Models and Measures for Assessing the Competitiveness of International Financial Services in a Particular Location," Working Papers 182007, Hong Kong Institute for Monetary Research. [Downloadable!]
  11. Marc Hofstetter, 2009. "Inflation Targeting in Latin America: Toward a Monetary Union?," DOCUMENTOS CEDE 005855, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
  12. Pierre L. Siklos & Diana N. Weymark, 2009. "Has Inflation Targeting Improved Monetary Policy? Evaluating Policy Effectiveness in Australia, Canada, and New Zealand," Working Papers 0906, Department of Economics, Vanderbilt University. [Downloadable!]
  13. Heinz Handler, 2008. "From the Bancor to the Euro. And Further on to the Intor?," WIFO Working Papers 317, WIFO. [Downloadable!]
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