Harry Johnson's 'Case for Flexible Exchange Rates' - 50 Years Later

35 Pages Posted: 25 Mar 2020

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: March 2020

Abstract

Fifty years ago, Harry G. Johnson published "The Case for Flexible Exchange Rates, 1969," its title echoing Milton Friedman's earlier classic essay of the early 1950s. Though somewhat forgotten today, Johnson's reprise was an important element in the late 1960s debate over the future of the international monetary system. The present paper has three objectives. The first is to lay out the historical context in which Johnson's "Case" was written and read. The second is to examine Johnson's main points and see how they stand up to nearly five decades of experience with floating exchange rates since the end of the Bretton Woods system. The third is to review the most recent academic critiques of exchange-rate flexibility and ask how fatal they are to Johnson's basic argument. I conclude that the essential case for exchange rate flexibility still stands strong.

Keywords: dominant currency pricing, effective lower bound, exchange rate regimes, Floating Exchange Rates, Global financial cycle, global value chains, international monetary system

JEL Classification: F31, F33, F41, F42, N20, N24

Suggested Citation

Obstfeld, Maurice, Harry Johnson's 'Case for Flexible Exchange Rates' - 50 Years Later (March 2020). CEPR Discussion Paper No. DP14488, Available at SSRN: https://ssrn.com/abstract=3560295

Maurice Obstfeld (Contact Author)

University of California, Berkeley ( email )

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Peterson Institute for International Economics ( email )

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National Bureau of Economic Research ( email )

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Centre for Economic Policy Research ( email )

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