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International Transmission Under Bretton Woods

  • Alan C. Stockman

This paper explores the main channels of international transmission of economic disturbances under the Bretton Woods System and presents evidence on the short-run international transmission of inflation under that system. There appears to have been little short-run international transmission of inflation. Countries with one-percent higher money-growth rates subsequently had one-fourth to one-half percent higher inflation and a (predictably) lower real interest rate. This probably reflects effects of money growth on inflation and interest rates rather than reverse causation: the natural interpretation of the evidence is that countries had some scope for monetary-policy independence under Bretton Woods, despite pegged exchange rates, and exercised that independence in ways that limited international transmission.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4127.

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Date of creation: Jul 1992
Date of revision:
Publication status: published as A Retrospective on Bretton Woods, Michael Bordo and Barry Eichengreen Eds., Chicago, IL: University of Chicago Press, 1993.
Handle: RePEc:nbr:nberwo:4127
Note: IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
  2. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
  3. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
  4. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, vol. 83(3), pages 416-36, June.
  5. Stockman, Alan C., 1988. "Real exchange-rate variability under pegged and floating nominal exchange-rate systems: An equilibrium theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 259-294, January.
  6. Lars E.O. Svensson & Sweder van Wijnbergen, 1987. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," NBER Working Papers 2262, National Bureau of Economic Research, Inc.
  7. 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.
  8. Darby, Michael R. & Lothian, James R. & Gandolfi, Arthur E. & Schwartz, Anna J., 1983. "The International Transmission of Inflation," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226136417, March.
  9. Obstfeld, Maurice & Stockman, Alan C., 1985. "Exchange-rate dynamics," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 18, pages 917-977 Elsevier.
  10. Stockman, Alan C. & Dellas, Harris, 1989. "International portfolio nondiversification and exchange rate variability," Journal of International Economics, Elsevier, vol. 26(3-4), pages 271-289, May.
  11. Persson, Torsten, 1984. "Real transfers in fixed exchange rate systems and the international adjustment mechanism," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 349-369, May.
  12. Dellas, Harris, 1986. "A real model of the world business cycle," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 381-394, September.
  13. Charles Engel, 1991. "Is real exchange rate variability caused by relative price changes? An empirical investigation," Research Working Paper 91-02, Federal Reserve Bank of Kansas City.
  14. Svensson, Lars E O, 1986. "Sticky Goods Prices, Flexible Asset Prices, Monopolistic Competition, and Monetary Policy," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 385-405, July.
  15. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  16. Eric M. Leeper & David B. Gordon, 1991. "In search of the liquidity effect," International Finance Discussion Papers 403, Board of Governors of the Federal Reserve System (U.S.).
  17. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
  18. Svensson, Lars E. O., 1985. "Currency prices, terms of trade, and interest rates: A general equilibrium asset-pricing cash-in-advance approach," Journal of International Economics, Elsevier, vol. 18(1-2), pages 17-41, February.
  19. Alan C. Stockman & Linda L. Tesar, 1990. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
  20. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  21. Alan C. Stockman, 1978. "A Theory of Exchange Rate Determination," UCLA Economics Working Papers 113, UCLA Department of Economics.
  22. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 411-434, December.
  23. Phillips, Kerk L., 1991. "A two-country model of stochastic output with changes in regime," Journal of International Economics, Elsevier, vol. 31(1-2), pages 121-142, August.
  24. Stockman, Alan C. & Stockman, Alan C., 1983. "Real exchange rates under alternative nominal exchange-rate systems," Journal of International Money and Finance, Elsevier, vol. 2(2), pages 147-166, August.
  25. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
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