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Global imbalances and the Revised Bretton Woods hypothesis: Wrong before the crisis and wrong after

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  • Thomas I. Palley

Abstract

This paper explores and contrasts the revised Bretton Woods hypothesis (BW II) with the structural Keynesian hypothesis. Whereas the former sees the growing global imbalances of the three decades prior to the financial crisis of 2008 as beneficial, the latter sees them as problematic and destructive of shared prosperity in the United States. Moreover, the U.S. economic relationship with China is viewed as especially problematic as it involves the largest bi-lateral trade deficit, and because it has also been a major source of investment diversion and manufacturing job loss. The paper's conclusion is the BW II analogy between today's global financial system and the original Bretton Woods system is without foundation, but it survives because the hypothesis helps rationalize and justify large trade deficits and the process of corporate globalization.

Suggested Citation

  • 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.
  • Handle: RePEc:imk:wpaper:108-2013
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_108_2013.pdf
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    References listed on IDEAS

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    1. Thomas I. Palley, 2006. "The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement," Working Papers wp114, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Kalina Manova & Zhiwei Zhang, 2008. "China's exporters and importers: firms, products, and trade partners," Working Paper Series 2008-28, Federal Reserve Bank of San Francisco.
    3. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
    4. Thomas I. Palley, 2011. "The Rise and Fall of Export-led Growth," Economics Working Paper Archive wp_675, Levy Economics Institute.
    5. 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.
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    More about this item

    Keywords

    Revised Bretton Woods hypothesis; Structural Keynesian hypothesis; global imbalances; U.S. trade deficit;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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