CHAPTER 23: JAPAN INTERNATIONAL MONETARY RESPONSIBILITIES, AND POLICY COORDINATION: THE LOUVRE AND PLAZA ACCORDS

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17 Apr 2012
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CHAPTER 23: JAPAN INTERNATIONAL MONETARY
RESPONSIBILITIES, AND POLICY COORDINATION: THE LOUVRE
AND PLAZA ACCORDS
U.S. Monetary Policy in the 1980’s
The actions of a leader behaving irresponsibly
Resolving its own problems with inflation
Drove up interest rates and sparked international debt crisis
Became a net international debtor
U.S. trade balance went into a large deficit, largely due to the
dollar’s over evaluation
Responding to Dollar Over Liquidity Again
GNP of the U.S. grew along with employment, while inflation
and unemployment rates fell
Reagan administration
o Focused on pressuring other countries to liberalize trade
o Introduced new bonds to attract foreign capital
o Bureaucratic Politics
! Fed was tightening the domestic money supply
! The treasury was running a loose fiscal policy
! The Fed pursued its objective of strengthening the
dollar regardless of the short run economic
repercussions
Coordination to Bring the Dollar Down
Multi-lateral approach
Goals of the treasury and the Fed
o Ease monetary policy
o Bring down the value of the dollar
Coordination of the Fed and Treasury
The Plaza Accord: Japan’s Rising Role in Monetary Affairs
The Plaza Accord ushered in a period of coordination among
major powers
Japan had been becoming the foremost international creditor
They all wanted steady growth with low inflation
None of the countries completely followed through
The Louvre Accord
The G5 (plus Canada) secretly agreed to stabilize the
exchange values of the dollar/yen/deutschmark
Japan introduced a more expansionary fiscal policy
System-Level Explanations: Japan as a Rival Leader
Japan used to undervalue its currency to help exports remain
competitive
The Domestic: Sources of International Monetary Cooperation
The threat of protectionist policies in the U.S. influenced
Japan’s domestic policy
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