This paper explores the main channels of international transmission of economic disturbances under the Bretton Woods System and presents evidence on the short-run international transmission of inflation under that system. There appears to have been little short-run international transmission of inflation. Countries with one-percent higher money-growth rates subsequently had one-fourth to one-half percent higher inflation and a (predictably) lower real interest rate. This probably reflects effects of money growth on inflation and interest rates rather than reverse causation: the natural interpretation of the evidence is that countries had some scope for monetary-policy independence under Bretton Woods, despite pegged exchange rates, and exercised that independence in ways that limited international transmission.
*Published: This paper was subsequently published as International Transmission under Bretton Woods, Alan C. Stockman, in NBER book A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform (1993)
A Retrospective on Bretton Woods, Michael Bordo and Barry Eichengreen Eds., Chicago, IL: University of Chicago Press, 1993.
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