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