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The Making of Exchange Rate Policy in the 1980s

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  • Jeffrey Frankel.

Abstract

This paper, written for an NBER conference on "American Economic Policy in the 1980s," discusses the dollar from the standpoint, not of what moved the exchange rate or what policies might have been better, but rather of why the political system adopted the policies that it did. The first half is a chronology of major exchange rate developments during the decade. The second half analyzes the actors and interest groups involved, their views on exchange rate policy, and the system within which they interacted. The strong dollar policy of the first Reagan Administration was less the result of the power of a particular economic ideology or interest group, than it was the result of Treasury Secretary Donald Regan's tenacious defense of the desirability of the side-effects of the President's economic program. The more pragmatic response of his successor, James Baker, to the problems of the trade deficit was to sanction the depreciation of the dollar from 1985 to 1987. But here again, the success of the Plaza strategy was less the result of a skillful and deliberate manipulation of policy tools to satisfy important interest groups, than it was the outcome of a mutually-reinforcing convoy of three bandwagons: bandwagons of the markets, the media, and the makers of policy.

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Bibliographic Info

Paper provided by University of California at Berkeley in its series Economics Working Papers with number 91-157.

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Date of creation: 01 Mar 1991
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Handle: RePEc:ucb:calbwp:91-157

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References

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  1. Paul R. Krugman, 1986. "Is the Strong Dollar Sustainable?," NBER Working Papers 1644, National Bureau of Economic Research, Inc.
  2. Dominguez, Kathryn & Frankel, Jeffrey A., 1990. "Does Foreign Exchange Intervention Matter? Disentangling the Portfolio an Expectations Effects for the Mark," Department of Economics, Working Paper Series qt84c522k9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Thomas Havrilesky, 1990. "Distributive Conflict And Monetary Policy," Contemporary Economic Policy, Western Economic Association International, vol. 8(2), pages 50-61, 04.
  4. Jeffrey D. Sachs, 1985. "The Dollar and the Policy Mix: 1985," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 117-197.
  5. Bovenberg, A Lans, 1989. "The Effects of Capital Income Taxation on International Competitiveness and Trade Flows," American Economic Review, American Economic Association, vol. 79(5), pages 1045-64, December.
  6. Jeffrey Sachs, 1985. "The Dollar and the Policy Mix: 1985," NBER Working Papers 1636, National Bureau of Economic Research, Inc.
  7. Bovenberg, A.L., 1989. "The effects of capital income taxation on international competitiveness and trade flows," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152951, Tilburg University.
  8. McKinnon, Ronald I, 1988. "Monetary and Exchange Rate Policies for International Financial Stability: A Proposal," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 83-103, Winter.
  9. Feldstein, Martin S, 1988. "Distinguished Lecture on Economics in Government: Thinking about International Economic Coordination," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 3-13, Spring.
  10. Stanley D Nollen, 1987. "Business Costs and Business Policy for Export Controls," Journal of International Business Studies, Palgrave Macmillan, vol. 18(1), pages 1-18, March.
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Cited by:
  1. Owen F. Humpage, 1991. "Central-bank intervention: recent literature, continuing controversy," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 12-26.
  2. Ito, Hiro, 2009. "U.S. current account debate with Japan then, with China now," Journal of Asian Economics, Elsevier, vol. 20(3), pages 294-313, May.

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