ECON 319 Lecture Notes - Lecture 1: Exchange Rate, Rudi Dornbusch, U.S. Route 35
9 Feb 2017
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Fixed exchange rate system based on both the us dollar and the gold. > price of gold was fixed at us per ounce, and the us treasury stood ready to buy or sell any amount of gold required to peg the price. Countries pegged their individual currencies to the us dollar. The international monetary fund was created to verse the necessary payments, and to deal with whatever imbalances occurred, duri(cid:374)g the operatio(cid:374) of this (cid:862)gold-ex(cid:272)ha(cid:374)ge(cid:863) sta(cid:374)dard. This system worked relatively well until late 1960s where fiscal expenditures (for vietnam war and such) resulted in inflation. With inflation, the underlying free-market price of gold began to rise, but the system required the price to be pegged at us 35 per ounce. Result was that us began loosing gold to buyers around the world and thus nixon dropped the gold standard. Price levels, interest rates and commodity prices. Rudiger dornbusch developed a theory to explain the volatility of exchange rates.
