Credibility and the International Monetary Regime

The present global monetary regime is based on floating among the major advanced countries. A key underlying factor behind the present regime is credibility to maintain stable monetary policies. The origin of credibility in monetary regimes goes back to the pre-1914 classical gold standard. In that regime, adherence by central banks to the rule of convertibility of national currencies in terms of a fixed weight of gold provided a nominal anchor to the price level. Between 1914 and the present several monetary regimes gradually moved away from gold, with varying success in maintaining price stability and credibility. In this book, the editors present ten studies combining historical narrative with econometrics that analyze the role of credibility in four monetary regimes, from the gold standard to the present managed float. Advance praise: 'This collection of state-of-the-art studies, combining deep historical knowledge with modern statistical methods, sheds important new light on long-standing controversies concerning the evolution of the international monetary system.' Barry Eichengreen, University of California, Berkeley 'An excellent book and, when policy credibility comes once more on the front stage, a timely one.' Marc Flandreau, Graduate Institute of International and Development Studies, Geneva 'This book constitutes a rigorous and compelling investigation of how credibility in fixed exchange rate systems can be tested and compared. It is a major contribution both to financial history and to policy debates about the circumstances in which pegged exchange rate systems can be sustained.' Harold James, Princeton University 'Trying to understand monetary policy without an appreciation of credibility is like watching Hamlet without the Prince of Denmark. This volume provides a one-stop shop for a balanced and comprehensive set of studies on monetary credibility; highly recommended.' Andrew K. Rose, Haas School of Business, University of CaliforniaPart I. Introduction: 1. Credibility and the international monetary regime: theoretical and historical perspectives Michael D. Bordo and Ronald MacDonald; Part II. Classical Gold Standard: 2. Credibility and fundamentals: were the classical and inter-war gold standards well-behaved target zones? C. Paul Hallwood, Ronald MacDonald and Ian W. Marsh; 3. Interest rate interactions in the classical gold standard, 1880-1914: was there any monetary independence? Michael D. Bordo and Ronald MacDonald; 4. Realignment expectations and the US dollar, 1890-7: was there a peso problem? C. Paul Hallwood, Ronald MacDonald, and Ian W. Marsh; Part III. Inter-War Period: 5. The inter-war gold exchange standard: credibility and monetary independence Michael D. Bordo and Ronald MacDonald; 6. Crash! Expectational aspects of the UK's and the USA's departures from the inter-war gold standard C. Paul Hallwood, Ronald MacDonald and Ian W. Marsh; 7. Did impending war in Europe help destroy the gold bloc in 1936? An internal inconsistency hypothesis C. Paul Hallwood, Ronald MacDonald and Ian W. Marsh; Part IV. Bretton Woods Period: 8. Sterling in crisis: 1964-7 Michael D. Bordo, Ronald MacDonald and Michael J. Oliver; Part V. The European Monetary System: 9. On the mean-reverting properties of target zone exchange rates: some evidence from the ERM Myrvin Anthony and Ronald MacDonald; 10. Credibility and interest rate discretion in the ERM Hali Edison and Ronald MacDonald.