Bretton-Woods Systems, Old and New, and the Rotation of Exchange-Rates Regimes

Stephen Hall, George Hondroyiannis, P.A.V.B. Swamy and George Tavlas

No 09/15, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: A recent contribution to the literature argues that the present international monetary system in many ways operates like the Bretton-Woods system. Asia is the new periphery of the system and pursues an export-led development strategy. The members of the new periphery peg their currencies to the U.S. dollar at undervalued exchange rates and accumulate foreign reserves. In contrast, the old periphery - - consisting of Western Europe, Canada and parts of Latin America - - interacts with the centre with flexible exchange rates; its aggregate current account has been roughly in balance. As under the older system, the United States remains the centre country, pursuing a monetary-policy strategy that overlooks the exchange rate. An implication of this argument is the following asymmetry hypothesis: under both regimes the United States does not take external factors into account in conducting monetary policy while the periphery does take external factors into account. We provide results of a test of the asymmetry hypothesis. Then, we present a new method for decomposition of the business cycle using a time-varying-coefficient technique that allows us to test the relationship between the cycle and macroeconomic policies. We apply this technique to five countries for three sub-periods over the 1959 to 2007 period.

Keywords: Revived Bretton-Woods System; Asymmetry Hypothesis; Time-Series Decomposition; Time-Varying-Coefficient Estimation (search for similar items in EconPapers)
JEL-codes: C22 E32 F33 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: BRETTON‐WOODS SYSTEMS, OLD AND NEW, AND THE ROTATION OF EXCHANGE‐RATE REGIMES (2011)
Working Paper: Bretton-Woods systems, old and new, and the rotation of exchange-rate regimes (2010)
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