Working Paper: NBER ID: w20656
Authors: Michael D. Bordo; Owen F. Humpage
Abstract: During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stopgap devices—the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations—to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on the domestic objectives and shifted responsibility for international developments to the Treasury. Removing the pressure of international considerations from Federal Reserve policy decisions made it easier for the Federal Reserve to pursue the inflationary policies of the late 1960s and 1970s that ultimate destroyed Bretton Woods. In the end, the Treasury’s stopgap devices, which were intended to support Bretton Woods, contributed to its demise.
Keywords: Bretton Woods; Federal Reserve; Monetary Policy; Balance of Payments; Gold Standard
JEL Codes: E5; N1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Treasury's stopgap measures (E63) | Federal Reserve's focus on domestic economic growth and full employment (E52) |
| Treasury's stopgap measures (E63) | Federal Reserve's inflationary policies during late 1960s and 1970s (E64) |
| Federal Reserve's focus on domestic objectives (E52) | inflation during late 1960s and 1970s (E31) |
| Federal Reserve's failure to address external monetary stability (E63) | inflation during late 1960s and 1970s (E31) |
| Treasury's stopgap measures (E63) | shift responsibility for international issues away from Federal Reserve (F33) |