
Contents
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4.1. Introduction 4.1. Introduction
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4.2. An Overview of Exchange Rate Policy: 1971–90 4.2. An Overview of Exchange Rate Policy: 1971–90
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4.2.1. Monetary Policy 4.2.1. Monetary Policy
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4.2.2. Foreign Exchange Market Intervention 4.2.2. Foreign Exchange Market Intervention
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4.2.3. Fiscal Policy 4.2.3. Fiscal Policy
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4.2.4. Exchange and Capital Controls 4.2.4. Exchange and Capital Controls
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4.2.5. Trade Measures 4.2.5. Trade Measures
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4.3. The Currency Crises 4.3. The Currency Crises
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4.3.1. Collapse of the Bretton Woods System: 1971 4.3.1. Collapse of the Bretton Woods System: 1971
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4.3.2. The Smithsonian Agreement: 1971 4.3.2. The Smithsonian Agreement: 1971
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4.3.3. Demise of the Smithsonian Agreement: 1973 4.3.3. Demise of the Smithsonian Agreement: 1973
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4.4. The oil Crises 4.4. The oil Crises
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4.4.1. The 1973–4 Crisis 4.4.1. The 1973–4 Crisis
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4.4.2. The 1979–80 Crisis 4.4.2. The 1979–80 Crisis
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4.5. International Policy Coordination 4.5. International Policy Coordination
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4.5.1. The Bonn Agreement: 1978 4.5.1. The Bonn Agreement: 1978
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4.5.2. The Plaza Agreement: 1985 4.5.2. The Plaza Agreement: 1985
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4.5.3. The Louvre Accord: 1987 4.5.3. The Louvre Accord: 1987
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4.6. Economic Consequences of the Higher Yen 4.6. Economic Consequences of the Higher Yen
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4.6.1. Sluggish External Adjustment 4.6.1. Sluggish External Adjustment
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4.6.2. The Savings–Investment Balance 4.6.2. The Savings–Investment Balance
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4.6.3. Exchange Rate Pass-through 4.6.3. Exchange Rate Pass-through
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4.6.4. Domestic and Foreign Price Differentials 4.6.4. Domestic and Foreign Price Differentials
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4.6.5. Structural Changes in the Japanese Economy 4.6.5. Structural Changes in the Japanese Economy
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4.6.6. Asset Price Inflation 4.6.6. Asset Price Inflation
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4 Managing Flexibility: 1971–90
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Published:April 2015
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Abstract
Chapter 4 reviews how Japanese authorities managed the flexible exchange rate for the yen in response to external and domestic developments. In particular, the chapter discusses policy actions taken during the currency crises of 1971 and 1973, the oil crises of 1973–4 and 1979–80, and the international policy coordination attempts of 1978 and 1985–7, explaining how authorities used capital controls, market intervention, monetary and fiscal policies, and other measures to manage the yen–dollar exchange rate. The concluding section reviews the academic debate that has since ensued about the impact of exchange rate changes on current account and price adjustments and assesses the economic consequences of Japan’s policy stance that, in retrospect, subordinated domestic objectives to external considerations
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