Working Paper: CEPR ID: DP15286
Authors: Eric Monnet; Damien Puy
Abstract: We assess the importance of individual and institutional experience in shaping macroeconomic policy by studying the persistence of gold standard monetary practices in the Bretton Woods system. Using new historical data from the IMF, we show that, although they were not required to, countries continued to back currency in circulation with gold. The longer an institution had spent in the gold standard before 1944 (and the older the policymakers), the tighter the link between gold and currency during Bretton Woods. Such “old habits” prevented dollars and gold from working as perfect substitutes and ultimately contributed to the demise of the Bretton Woods system. Our findings highlight the persistence of past practices, even in the face of radical institutional change, and its consequences on the international monetary system.
Keywords: central banking; foreign reserves; culture; beliefs; bretton woods; gold; international monetary system
JEL Codes: N10; D83; E52; F33; M1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical practices (B15) | current monetary policy (E52) |
| institutional memory (B15) | monetary policy decisions (E52) |
| personal experiences of central bank governors (E58) | monetary policy decisions (E52) |
| longer history in gold standard (N13) | currency backed by gold during Bretton Woods (F33) |
| older central bank governors (E58) | maintenance of gold reserves (F33) |
| persistence of gold standard practices (E42) | functioning of Bretton Woods system (F33) |
| persistence of gold standard practices (E42) | collapse of Bretton Woods system (F33) |