Exchange Rate Regime Choices in Small Open Economies from Bretton Woods to Inflation Targeting

Nathan Sussman, Charles Wyplosz*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

After centuries of metallic monies, for a long time, our understanding of fiat money had remained rudimentary and often controversial. Successive regimes eventually failed. The end of the Bretton Woods system marked the moment when the link between fiat money and gold was severed and when the possibility of letting exchange rates float became possible. The small open economies adopted various arrangements. Informed by these experiments, the understanding of monetary policy substantially progressed, leading to the widespread adoption of the expected inflation-targeting strategy with similar inflation targets. As a result, exchange rate variability has declined. The US dollar dominance was maintained and even increased. Yet, new challenges have emerged. The long period of interest rates stuck at the effective bound effectively suspended the use of the strategy. Then, during the post-pandemic surge in inflation rates, inflation forecasts became highly imprecise.

Original languageEnglish
Pages (from-to)394-414
Number of pages21
JournalComparative Economic Studies
Volume66
Issue number3
DOIs
StatePublished - Sep 2024
Externally publishedYes

Bibliographical note

Publisher Copyright:
© The Author(s) 2024.

Keywords

  • B27
  • Bretton Woods
  • Dollar dominance
  • E02
  • E58
  • Exchange rate regimes
  • F33
  • F55
  • Inflation targeting

Fingerprint

Dive into the research topics of 'Exchange Rate Regime Choices in Small Open Economies from Bretton Woods to Inflation Targeting'. Together they form a unique fingerprint.

Cite this