Andrew Walter (London - Dec 2010)

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Andrew Walter (London - Dec 2010)

  1. 1. Global imbalances – lessons from Bretton Woods? Andrew Walter, LSE
  2. 2. Global imbalances during & after the Bretton Woods period <ul><li>Much smaller during the BW era </li></ul><ul><li>US external & internal imbalances modest </li></ul><ul><li>Serious deterioration in the post-BW era </li></ul>
  3. 3. Current account balances, % world GDP, 1970-2009 Source: World Bank, WDI
  4. 4. US imbalances & inflation, 1960-2009 Source: Economic Report of the President database.
  5. 5. Source: US Bureau of Economic Analysis
  6. 6. Source: US Bureau of Economic Analysis
  7. 7. So did the BW rules constrain global imbalances? <ul><li>Only indirectly: pegged exchange rates, capital controls, & financial repression </li></ul><ul><ul><li>Large imbalances & liberalized finance (gold standard, 1970s+) </li></ul></ul><ul><li>BW surveillance / policy coordination process acrimonious </li></ul><ul><ul><li>Bilateral & multilateral process: few notable policy adjustments </li></ul></ul><ul><ul><li>Weakened IMF surveillance (G10 & OECD WP3) </li></ul></ul><ul><ul><li>These negotiations were between Cold War allies! </li></ul></ul><ul><ul><li>Unilateral US demands for concessions by surplus countries </li></ul></ul><ul><li>The BW surveillance rules & process still largely intact, even strengthened from 1977 </li></ul>
  8. 8. Modest exchange rate adjustments major currencies vs. US$ 1955-1973 (3 Jan 1960=100)
  9. 9. Reflected lack of agreement on two ‘Keynesian’ adjustment principles <ul><li>Symmetric adjustment responsibilities between surplus & deficit countries </li></ul><ul><ul><ul><li>Deflationary bias of the gold standard (Keynes: fines on persistent surplus countries) </li></ul></ul></ul><ul><li>Special responsibilities for the main reserve centre countries </li></ul><ul><ul><ul><li>Britain unwilling to generalize this principle – wanted specific US concessions (e.g. scarce currency clause) </li></ul></ul></ul><ul><li>Marshall Aid era: </li></ul><ul><ul><li>US the best surplus country & reserve centre ever? </li></ul></ul><ul><ul><li>But motivated by Cold War objectives & bypassed BW institutions </li></ul></ul>
  10. 10. Lessons from, or legacy of BW? <ul><li>The BWS didn’t produce any lasting agreement on adjustment responsibilities </li></ul><ul><li>US position & policies problematic </li></ul><ul><ul><li>Unilateralism & minilateralism undermines IMF surveillance </li></ul></ul><ul><ul><li>Refusal of special reserve centre responsibilities </li></ul></ul><ul><li>So too that of major surplus countries </li></ul><ul><ul><li>Reject first adjustment principle, demand special responsibilities for reserve centres </li></ul></ul><ul><li>What explains these failures? </li></ul><ul><ul><li>Domestic political constraints on all policymakers </li></ul></ul><ul><ul><li>Power asymmetries favouring US, Germany, France </li></ul></ul><ul><ul><li>Limited acceptance of Keynesianism in Germany? (Hall et al.) </li></ul></ul><ul><li>We’re still living with the consequences </li></ul>

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