Development and Underdevelopment in the History of Economic Thought

The young Robert Triffin’s criticism of Purchasing Power Parity

Maes Ivo, National Bank of Belgium

Robert Triffin is known as the Cassandra who predicted the end of the Bretton Woods system. In the beginning of his career, Triffin was very much involved in analyses of determinants of exchange rates. As a young economist, Triffin made the calculations for the 1935 devaluation of the Belgian franc and in 1946 he was involved in the IMF’s analyses of the “initial par values” of several currencies. Triffin’s analyses show a great skepticism of purchasing power parity. His approach was very much based on the Louvain analyses of business cycles, with an emphasis on disequilibria, and his Harvard work on imperfect competition theory. Moreover, at the IMF, he would stress that a liberal attitude towards modifications in parity was necessary, not only because of initial mistakes, but also because of future developments in turbulent times.

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Keywords: Robert Triffin, purchasing power parity theory, international monetary system

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