Book contents
- Frontmatter
- Contents
- Foreword by Richard R. West
- Preface
- List of contributors
- 1 Beyond trade friction: an overview
- Part I Macroeconomic policy issues
- 2 Japan and the United States: the need to prosper together
- 3 Internationalization and restructuring of the Japanese economy
- 4 The limits of monetary coordination as exchange rate policy
- Part II Commercial policy issues
- Part III Financial integration issues
- Index
4 - The limits of monetary coordination as exchange rate policy
Published online by Cambridge University Press: 22 March 2010
- Frontmatter
- Contents
- Foreword by Richard R. West
- Preface
- List of contributors
- 1 Beyond trade friction: an overview
- Part I Macroeconomic policy issues
- 2 Japan and the United States: the need to prosper together
- 3 Internationalization and restructuring of the Japanese economy
- 4 The limits of monetary coordination as exchange rate policy
- Part II Commercial policy issues
- Part III Financial integration issues
- Index
Summary
Introduction: The argument outlined
Proposals for coordinating monetary policy in order to stabilize nominal or real exchange rates, or to target monetary policy on the nominal exchange rate, assume, explicitly or implicitly, that (a) exchange rate fluctuations are, on balance, harmful to the economy, and that (b) monetary policy can productively reduce the amplitude of these fluctuations. The main objective of this chapter is to examine the analytical basis and empirical evidence for these assumptions. The conclusion is that both hold only some of the time. This means that a coordination agreement would have to define when the assumptions hold, a difficult task, indeed. Further, proposals for a formal international conference to implement a coordination agreement – a “new Bretton Woods” – assume that this is at least politically feasible. Toward the end of the chapter I argue that this is not the case, and that the failed World Economic Conference of 1933 is a more apt metaphor than Bretton Woods.
Movements in the real exchange rate of the dollar have had substantial effects on employment and output in U.S. manufacturing industries. At the level of all manufacturing, the elasticity of response of employment to the real exchange rate (up is appreciation) is –0.14. Thus a real appreciation of the dollar of 60 percent from 1980 to 1985 reduced manufacturing employment by 8.4 percent, or 1.7 million jobs.
- Type
- Chapter
- Information
- Beyond Trade FrictionJapan-US Economic Relations, pp. 41 - 62Publisher: Cambridge University PressPrint publication year: 1989