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The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement

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  • Thomas I. Palley

Abstract

Dooley et al. (2003) have argued that today’s international financial system has structural similarities with the earlier Bretton Woods (1946 – 71) arrangements and is stable. This paper argues that the comparison is misplaced and ignores fundamental microeconomic differences, and that today’s system is also vulnerable to a crash. Eichengreen (2004) and Goldstein and Lardy (2005) have also argued that the system is unsustainable. However, their focus is the sustainability of financing to cover the U.S. trade deficit, whereas the current paper focuses on inadequacies on the system’s demand side. The paper concludes with suggestions for a global system of managed exchange rates that should replace the current system – hopefully, before it crashes.

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Bibliographic Info

Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp114.

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Date of creation: 2006
Date of revision:
Handle: RePEc:uma:periwp:wp114

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Related research

Keywords: Revised Bretton Woods; export-led growth; aggregate demand;

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References

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  1. Morris Goldstein & Nicholas R. Lardy, 2005. "China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity," Working Paper Series WP05-2, Peterson Institute for International Economics.
  2. C. Fred Bergsten & Olivier Davanne & Pierre Jacquet, 1999. "The Case for Joint Management of Exchange Rate Flexibility," Working Paper Series wp99-9, Peterson Institute for International Economics.
  3. Thomas I. Palley, 2005. "External Contradictions of the Chinese Development Model: Export-led Growth and the Dangers of Global Economic Contraction," Working Papers wp101, Political Economy Research Institute, University of Massachusetts at Amherst.
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Cited by:
  1. Thomas I. Palley, 2011. "Explaining Global Financial Imbalances: A Critique of the Saving Glut and Reserve Currency Hypotheses," IMK Working Paper 13-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  2. Thomas I. Palley, 2013. "Global imbalances and the Revised Bretton Woods hypothesis: Wrong before the crisis and wrong after," IMK Working Paper 108-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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