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The Missing Bretton Woods Debate over Flexible Exchange Rates

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  • Douglas A. Irwin

Abstract

The collapse of the gold standard in the 1930s sparked a debate about the merits of fixed versus floating exchange rates. Yet the debate quickly vanished: there was almost no discussion about the exchange rate regime at the Bretton Woods conference in 1944 because John Maynard Keynes and Harry Dexter White agreed that exchange rate stability through fixed but adjustable pegs was the right approach. In light of the difficult macroeconomic tradeoffs experienced under the gold standard a decade earlier, the outright rejection of floating exchange rates seems surprising. This paper explores the views of leading economists about the exchange rate provisions in the Bretton Woods agreement and examines why arguments for floating exchange rates were so quickly dismissed.

Suggested Citation

  • Douglas A. Irwin, 2017. "The Missing Bretton Woods Debate over Flexible Exchange Rates," NBER Working Papers 23037, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23037
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    1. Nikolaus Wolf, 2008. "Scylla and Charybdis. Explaining Europe’s Exit from Gold, January 1928 – December 1936," CESifo Working Paper Series 2271, CESifo Group Munich.
    2. Myhrman, Johan, 1976. " Experiences of Flexible Exchange Rates in Earlier Periods: Theories, Evidence and a New View," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 169-196.
    3. Frank D. Graham, 1929. "Self-limiting and Self-inflammatory Movements in Exchange Rates; Germany," The Quarterly Journal of Economics, Oxford University Press, vol. 43(2), pages 221-249.
    4. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "Monetary Sovereignty, Exchange Rates, and Capital Controls: The Trilemma in the Interwar Period," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 75-108, June.
    5. Wolf, Nikolaus, 2008. "Scylla and Charybdis. Explaining Europe's exit from gold, January 1928-December 1936," Explorations in Economic History, Elsevier, vol. 45(4), pages 383-401, September.
    6. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133.
    7. Benn Steil, 2013. "The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order," Economics Books, Princeton University Press, edition 1, number 9925, March.
    8. Filippo Cesarano, 2003. "Defining fundamental disequilibrium: Keynes's unheeded contribution," Journal of Economic Studies, Emerald Group Publishing, vol. 30(5), pages 474-492, October.
    9. Boyer, Russell S., 2009. "Reflections on Milton Friedman's contributions to open economy money/macro," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1097-1116, November.
    10. Anthony M. Endres, 2008. "Frank Graham's Case for Flexible Exchange Rates: A Doctrinal Perspective," History of Political Economy, Duke University Press, vol. 40(1), pages 133-162, Spring.
    11. Frank D. Graham, 1949. "Exchange Rates: Bound Or Free?," Journal of Finance, American Finance Association, vol. 4(1), pages 13-27, March.
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    Cited by:

    1. Edward Nelson, 2017. "The Continuing Validity of Monetary Policy Autonomy Under Floating Exchange Rates," Finance and Economics Discussion Series 2017-112, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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