Macroeconomic Performance in the Bretton Woods Era and After

During the Bretton Woods era, OECD countries grew at historicallyunprecedented rates. This Golden Age has many possible explanations,ranging from the return to liberal policies in internationaltrade to a backlog of profitable growth opportunities afterthe neglect of the 1930s and wartime damage. Eichengreen (1996)has argued that the proximate cause of the rapid growth washigh investment, and that this high investment was made possibleby certain institutions that were particularly well suited toreconstruction and growth. On the domestic side, these institutionsled to high investment rates and moderate wage claims. Thispaper interprets the interaction between unions and firms asa coordination game. The risk-dominant equilibrium is selectedvia a global game argument. Only small changes to the payoffsare necessary to explain a change in the selected equilibriumand, therefore, the growth slowdown.