Working Paper: NBER ID: w17641
Authors: Maurice Obstfeld
Abstract: This paper analyzes current stresses in the two key areas that concerned the architects of the original Bretton Woods system: international liquidity and exchange rate management. Despite radical changes since World War II in the market context for liquidity and exchange rate concerns, they remain central to discussions of international macroeconomic policy coordination. To take two prominent examples of specific (and related) coordination problems, liquidity issues are paramount in strategies of national self-insurance through foreign reserve accumulation, while recent attempts by emerging market economies (EMEs) to limit real currency appreciation have relied heavily on nominal exchange rate management. A central message is that a diverse set of potential asymmetries among sovereign member states provides fertile ground for a variety of coordination failures. The paper goes on to discuss institutions and policies that might mitigate some of these inefficiencies.
Keywords: International Monetary System; Liquidity; Exchange Rates; Coordination Failures
JEL Codes: F32; F33; F36; F42; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand for international liquidity (E41) | coordination failures among sovereign states (D74) |
| increasing demand for reserve asset (E41) | issuer's ability to maintain its value (G32) |
| exchange rate policies (F31) | national economic stability (F52) |
| asymmetric growth between emerging and developed economies (O11) | complexities of international liquidity provision (F33) |