From the Bretton Woods system to the global non-system: the trials and tribulations of slow learning.

This article analyzes why it took several decades after the collapse of the Bretton Woods system in 1971 for economists and policymakers to understand and develop the global "non-system" characterized by inflation targeting and floating exchange rates. It explains that this understanding emerged through a two-stage intellectual process: first, the gradual creation of "Taylor-rule macroeconomics," which established how inflation-targeting regimes operate using interest rate rules; and second, the development of open-economy macroeconomic theories explaining how countries achieve internal and external balance within a system of floating exchange rates and high capital mobility. The paper discusses how this global non-system, exemplified by the Australian economy's experience during the Great Moderation, requires not only inflation targeting and floating exchange rates but also adequate fiscal discipline and effective financial regulation to function well. It further examines how the non-system responded to major shocks such as the Global Financial Crisis and the Covid-19 pandemic, highlighting challenges including fiscal austerity and limited support for emerging and poorer economies. The authors conclude that while the global non-system can, in principle, meet Keynes's macroeconomic objectives, it still requires ongoing leadership and cooperation to address future challenges.