Abstract
The world economy since the 19th century has been characterized by varying degrees of interdependence. In the pre-World War I world, individual economies to a great extent were exposed to economic events in the rest of the world. Countries were linked together through trade in goods and services; flows of human, financial, and physical capital; and information transfers. World War I fundamentally contracted each of these links. That process accelerated during the interwar period, when countries sought to insulate themselves from what they perceived to be negative impulses transmitted from abroad. One of the hallmarks of the Bretton Woods years, in reaction to the interwar experience, was a drive to liberate trade and immigration flows while preserving barriers to capital flows. Although the record is mixed because of actual steps and threats of further steps to restrict the channels of transmission, a distinctive feature of the period of floating exchange rates since 1973 is said to be a high and rising degree of interdependence.
Reprinted from Cato Journal 8 (Fall 1988): 451–72.
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Bordo, M.D., Schwartz, A.J., Darby, M.R. (1989). Transmission of Real and Monetary Disturbances under Fixed and Floating Exchange Rates. In: Dorn, J.A., Niskanen, W.A. (eds) Dollars Deficits & Trade. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-1288-0_10
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