The Impact of Bretton Woods International Capital Controls on the Global Economy and the Value of Geopolitical Stability: A General Equilibrium Analysis

Lee Ohanian, Paulina Restrepo-Echavarria, Diana Van Patten and Mark Wright

No 2020-042, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper quantifies the positive and normative effects of Bretton Woods capital controls on global economic activity. It applies a three-region DSGE model of the U.S., Western Europe, and the Rest of the World (ROW) that measures capital controls using observed regional consumption growth differences. We find sizable controls during Bretton Woods that prevented ROW capital from flowing to the U.S., and which reduced U.S. welfare and raised ROW welfare. By preventing capital flight in developing economies, we find that Bretton Woods controls promoted the U.S. foreign policy objective of promoting geopolitical stability in ally countries during the Cold War.

Keywords: Bretton Woods; capital flows; capital controls; business cycle accounting (search for similar items in EconPapers)
JEL-codes: E21 E65 F21 F33 F38 F41 J20 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2020-10-21, Revised 2025-04-11
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-his, nep-mac, nep-mon and nep-opm
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Working Paper: The Impact of Bretton Woods International Capital Controls on the Global Economy and the Value of Geopolitical Stability: A General Equilibrium Analysis (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:88995

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DOI: 10.20955/wp.2020.042

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