POLI 243 Lecture Notes - Lecture 23: Plaza Accord, Concessions In Tianjin, Japanese Yen
4 Sep 2016
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The Plaza and Louvre Accords
April 6, 2016
The Accords
• Finance Ministers from the G5 meet in NY (US, Japan, Britain, West Germany, and
France)
• FED increases interest rates in the end of the 70s – hold rates there into 80s to retain
confidence
o Talk about bringing the rates down in the mid 80s
• The Plaza Accords: Sept 85'
o Coordination of domestic policies desired too
o Economic slow down
o Americans buy more from the Japanese and the Germans without a reciprocal
agreement negatively affects American economy
▪ Need agreement to determine how much the dollar should drop
▪ Range of targets
▪ Coordinate fiscal policy efforts: strong japanese economy, little incentive
to coordinate fiscal policy (do not want to go into debt to spend money
like the US did on defense policy)
• The Louvre Accords Feb 87'
o Finance ministers meet because the Plaza Accord agreements were not completely
successful
o Lead to agreement on cooperation policies
o Connection between the 2 accords, same issues, coordination occurs
o Canada included
o Japan agrees to raise the Yen's value, and promises to increase domestic spending
– demanded by US
▪ Agree to fiscal stimulus – not as large as the US desired/enacted
▪ Change in the direction of activty on the part of the Japanese – concession
Explaining Japan's cooperation
• Japanese leaders compromise (reaction to US pressure) to raise yen's value through
market intervention
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Document Summary
The accords: finance ministers from the g5 meet in ny (us, japan, britain, west germany, and. Demanded by us: agree to fiscal stimulus not as large as the us desired/enacted, change in the direction of activty on the part of the japanese concession. Explaining japan"s cooperation: japanese leaders compromise (reaction to us pressure) to raise yen"s value through market intervention. Explaining japan"s cooperation: system level: japan"s post war economic strategy strategic importance to the us, economically successful, thanks to us exchange rate intervention, after wwii, 50s: bretton woods undervalues yen, structured by the cold war, us wants. 2: us suggestion to have free trade in agriculture completely disagreed in. After the election money supply tightened to readjust inflation: seen in the us, reason to have an independent central bank, treasury/ministry of finance (run by finance minister who is under the.
