LAUSR

ABSTRACT This paper uses a stochastic intertemporal model to analyse reserve flows and monetary autonomy under a fixed exchange rate, and applies the model to a study of the British experience under Bretton Woods. Even if international capital mobility is imperfect, monetary autonomy may be negligible in the model. The reduced form for reserve flows is estimated, generating an estimate of the offset coefficient. The results are consistent with the hypothesis that the Bank of England had zero monetary independence. While these results conflict with the prevailing view in the literature, they are consistent with some results in other recent studies using different approaches.