Where It All Begins: Eurodollars and International Monetary Policy Transmission under Bretton Woods

Guillaume Bazot, Eric Monnet and Matthias Morys
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Guillaume Bazot: Aix Marseille Univ, CNRS, AMSE, Marseille, France
Eric Monnet: Paris School of Economics
Matthias Morys: University of York [York, UK]

No 2625, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: The origins of modern financial globalization are often traced to the emergence of the Eurodollar market in the 1960s, but its implications for monetary policy under Bretton Woods remain unclear. This paper revisits international monetary transmission between 1948 and 1971 using a new monthly series of exogenous U.S. monetary policy shocks based on unanticipated daily changes in the Fed discount rate. We show that U.S. monetary tightening strongly affected U.S. inflation, output, and unemployment, while attracting capital inflows primarily through borrowing Eurodollars from the foreign branches of U.S. banks. After the restoration of current account convertibility in 1958, U.S. monetary shocks also increased Eurodollar and foreign interest rates, pointing to growing international financial integration. However, they had no significant effects on foreign output or credit, suggesting that domestic financial regulation and market segmentation continued to insulate Japanese and European economies from international shocks despite the expansion of offshore dollar markets.

Keywords: US monetary policy shocks; International monetary transmission; Trilemma; Financial globalization; Capital controls; Eurodollar market; Bretton Woods system (search for similar items in EconPapers)
JEL-codes: E44 E52 F33 F36 F42 N10 N20 (search for similar items in EconPapers)
Date: 2026-09-01
Note: Working paper AMSE 2026-25
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2625

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