Monetary Policy Shift delves into the crucial transition of the United States from the Bretton Woods system of fixed exchange rates to the flexible exchange rates prevalent today. It examines the economic and political factors that led to the breakdown of Bretton Woods, a system established in 1944 to promote stability by pegging exchange rates to the U.S. dollar, which was convertible to gold. One key insight is how rising inflation and balance of payments deficits ultimately rendered the fixed exchange rate regime unsustainable. The book argues this shift wasn't just technical but a fundamental change in economic management.
The book explores the challenges of managing monetary policy under flexible exchange rates, including increased volatility and the rise of new financial instruments. Using archival documents and econometric analysis, it traces the evolution of U.S. monetary policy, highlighting how policymakers adapted their strategies. For instance, the adoption of inflation targeting became a critical tool in maintaining economic stability.
The book progresses chronologically, starting with the establishment of Bretton Woods, then dissecting its collapse, and finally analyzing the implications of flexible exchange rates.
