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Chapter 23

Political Science Chapter 23 Summary.docx

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Political Science
POLI 243
Mark Brawley

Political Science Chapter 23 Summary Japan, International Monetary Responsibilities, and Policy Coordination: The Louvre and Plaza Accords US Monetary Policy in the 1980s - US monetary policies were full of leadership but were acting irresponsibly - Their policies to resolve their own problems had serious repercussions for other countries - Country shifted net international debtor - Trade balance went into large deficit largely due to dollar’s overvaluation Responding to Dollar Over-liquidity Again - The US experienced high inflation which was fought with high interest rates - Positive US economic performance was financed by foreign capital - Reagan pushed other countries to liberalize capital markets—attention was paid to Japan - The net agreement was to encourage the flow of foreign funds to the US - Everyone in the US blamed the high dollar for the growing trade imbalance - Their main goal was to cut inflation regardless repercussion to the dollar’s international value, trade balance, growth or employment Coordinating to Bring the Dollar Down - Once it decided to take action on exchange rate, it had to abandon its earlier position of unilateral inaction in terms of the exchange markets and to seek to establish a policy based on multilateralism - The Fed wanted to ease monetary policy and get the value of the dollar down, without setting dollar’s market value into downward spiral - Bureaucratic politics don’t seem to be a major force in the sense that each side agreed on goals but there’s a debate of the degree of coordination of their activities; Treasury acted to push dollar down while occasionally using Fed’s policies to put the brakes on The Plaza Accord: Japan’s Rising Role in Monetary Affairs - US was asked to lower its budget deficit by reducing spending, while other powers would increase their spending, thereby accepting a low rate of inflation - Aim was to bring exchange rates of the dollar, yen and deutschmark back to reasonable terms - Plaza accord ushered in period of coordination among major powers - b/c each country was worried about their own trade balances, each would up not going as far as they could and accusing others of doing too little The Louvre Accord - The G5 plus Canada agreed to stabilize values of the dollar, yen and deutschmark - US couldn’t reach domestic consensus on how much to reduce budget deficit and other countries were feeling reluctant except of Japan who instituted expansionary monetary policy - Dollar stabilized and began to appreciate leading to need for renegotiating the dollar-yen exchange rate - Monetary policies were aimed at stimulating economy, while pressur
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