Working Paper: NBER ID: w31595
Authors: Lee E. Ohanian; Paulina Restrepo-Echavarria; Diana Van Patten; Mark L.J. Wright
Abstract: This paper quantifies the positive and normative impact of Bretton Woods capital controls on global and regional economic activity. A three-region DSGE capital flows accounting framework consisting of the U.S., Western Europe, and the Rest of the World (ROW) is developed to quantify capital controls and evaluate their impact on the world economy. We find these controls had large effects. Counterfactual analysis show world output would have been 0:5 percent higher had there been perfect capital mobility, with substantial capital flowing from the ROW to the U.S. Bretton Woods capital controls raised welfare substantially in the ROW, but at the expense of much lower U.S. welfare. Given the U.S.’s goal of keeping capital within these countries to preserve their stability during this period, we interpret lower U.S. welfare due to Bretton Woods as the implicit value the U.S. placed on preserving geopolitical stability in ally countries during the Cold War.
Keywords: Bretton Woods; Capital Controls; Global Economy; Geopolitical Stability
JEL Codes: E0; F3; P0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bretton Woods capital controls (F38) | international flow of capital (F21) |
| Bretton Woods capital controls (F38) | world output (F01) |
| Bretton Woods capital controls (F38) | US welfare (I38) |
| Bretton Woods capital controls (F38) | ROW welfare (R13) |
| US consumption (E20) | US welfare (I38) |