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Bretton Woods II and the Emerging Economies: Lazarus, Phoenix, or Humpty Dumpty?


  • Arslan Razmi

    () (University of Massachusetts Amherst)


Several studies have commented on the emergence of a new interna- tional monetary system in the post-Asian crisis years. The current inter- national financial crisis has, however, put the so-called Bretton Woods II under considerable strain. This paper analyzes the sustainability of the pre-Lehman Brothers international monetary system from an emerging country perspective. A simple framework in which agents have a choice between financial and real assets is constructed in order to explore possi- ble consequences of some of the shocks that emerging economies are cur- rently experiencing. Stock and flow implications are analyzed. Assuming that recent events would have reinforced monetary authorities' desire to maintain an adequate cushion of reserves while preventing exchange rate volatility, we find that the response to most shocks would involve running continuous current account surpluses, that is, a continuation of a crucial aspect of Bretton Woods II. Given political and economic constraints, is such a continuation feasible? A preliminary exploration raises serious doubts and skims alternatives. JEL Categories: F02, F32, F36,

Suggested Citation

  • Arslan Razmi, 2009. "Bretton Woods II and the Emerging Economies: Lazarus, Phoenix, or Humpty Dumpty?," UMASS Amherst Economics Working Papers 2009-02, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2009-02

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    References listed on IDEAS

    1. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
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    5. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    6. Joshua Aizenman & Jaewoo Lee, 2007. "International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence," Open Economies Review, Springer, vol. 18(2), pages 191-214, April.
    7. Eichengreen, Barry & Sachs, Jeffrey, 1985. "Exchange Rates and Economic Recovery in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 45(04), pages 925-946, December.
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    9. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-7.
    10. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    11. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2009. "Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008," American Economic Review, American Economic Association, vol. 99(2), pages 480-486, May.
    12. Aizenman, Joshua & Marion, Nancy, 2003. "The high demand for international reserves in the Far East: What is going on?," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 370-400, September.
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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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