Economics Working Paper WP18101
Abstract: In this short paper, I review previous efforts at international coordination among central banks. In particular, I highlight the ultimate failure of both the gold standard and the Bretton Woods regimes. In both cases, the desire for a fixed rate regime forcing each country to make domestic monetary and fiscal policies subservient to pressures from the external balance. These regimes were not incentive compatible with sovereign nations’ desire to pursue independent monetary and fiscal policy. Thus, future efforts at coordination that seek to constrain or limit central bank’s domestic goals will most likely fail as well. I agree with John Taylor that the best results are likely to arise in more rule-like regimes with flexible exchange rates and capital mobility where the rules are more incentive compatible with domestic desires.