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THE FATAL FLAW: THE REVIVED BRETTON-WOODS SYSTEM, LIQUIDITY CREATION, AND COMMODITY-PRICE BUBBLES

  

Harris Dellas

University of Bern and CEPR

 

George S. Tavlas

Bank of Greece

ABSTRACT

Dooley, Folkerts-Landau and Garber (DFG) argue that the present constellation of global exchange-rate arrangements constitutes a revived Bretton-Woods system. DFG ALSO argue that the revived system will be sustainable, despite its large global imbalances. We argue that, to the extent that the present system constitutes a revived Bretton-Woods system, it is vulnerable to the same set of destabilizing forces - - including asset price bubbles and global financial crises - - that led to the breakdown of the earlier regime.

 

JEL classifications: C22, F33, N10

Keywords: Bretton-Woods system, international liquidity, price bubbles, Markov switching model

 

Acknowledgement: This paper was presented at the CATO Institute’s 28th Annual Monetary Conference in Washington, D.C., on November 18, 2010. The views expressed are those of the authors and should not be interpreted as those of their respective institutions.

 

Correspondence:

Harris Dellas

University of Bern

Schanzeneckstrasse 1, P.O. Box 8573
CH-3001 Bern, Switzerland
Tel +41 31 631 39 89
Fax: +41 31 631 39 92
e-mail:
harris.dellas@vwi.unibe.ch

 

  

George S. Tavlas

Bank of Greece

21, El. Venizelou Ave.,

10250 Athens, Greece,

Tel. +30210-3202370

Fax +30210-3202432

e-mail: gtavlas@bankofgreece.gr



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