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 31595, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper quantifies the positive and normative impact of Bretton Woods capital controls on global and regional economic activity. A three-region DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World (ROW) is developed to quantify capital controls and evaluate their impact on the world economy. We find these controls had large effects. Counterfactual analysis show world output would have been 0:5 percent higher had there been perfect capital mobility, with substantial capital flowing from the ROW to the U.S. Bretton Woods capital controls raised welfare substantially in the ROW, but at the expense of much lower U.S. welfare. Given the U.S.’s goal of keeping capital within these countries to preserve their stability during this period, we interpret lower U.S. welfare due to Bretton Woods as the implicit value the U.S. placed on preserving geopolitical stability in ally countries during the Cold War.

JEL-codes: E0 F30 P0 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-dge, nep-his, nep-int, nep-mon and nep-opm
Note: EFG
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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 (2024)
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