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

  • Bayoumi, Tamim
  • Eichengreen, Barry

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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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 425 (July)
Pages: 813-27

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Handle: RePEc:ecj:econjl:v:104:y:1994:i:425:p:813-27
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  1. 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.
  2. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
  3. 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.
  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. 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.
  6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  7. Barry Eichengreen, 1992. "Three Perspectives on the Bretton Woods System," NBER Working Papers 4141, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. repec:cup:cbooks:9780521407748 is not listed on IDEAS
  11. 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.
  12. 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.
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