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 impacts of Bretton Woods capital controls on global economic activity. It applies a three-region DSGE model consisting of the U.S., Western Europe, and the Rest of the World (ROW) to measure de facto capital controls and analyze their effects. Counterfactual analyses show Bretton Woods controls significantly prevented ROW capital from flowing to the U.S., had large negative welfare effects on the U.S., raised welfare in the ROW, and increased global output. Why did the U.S. support controls, given lower welfare? By keeping capital in the ROW, we find controls promoted key U.S. foreign policy objectives. U.S. officials anticipated capital would flow into the U.S. after the war, which they feared could dangerously destabilize ally countries at a time of global political tensions. We interpret controls as an international stabilization tool highly valued by the U.S.

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: 46 pages
Date: 2020-10-21, Revised 2024-09-19
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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DOI: 10.20955/wp.2020.042

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