Bretton woods system of fixed exchange rates, International Economics

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Q. Explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates.

Answer: Using the GG - LL framework will assist solve this. The oil price shock of 1973 move forwards the LL curve upward and to the right. Therefore the level of economic combination at which it becomes worthwhile to join the currency rises generally increased variability in the product markets makes countries less willing to enter fixed exchange rate areas. This prediction assists explain why the oil price shocks after 1973 made countries unwilling to revive the Bretton Woods system of fixed exchange rates.


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