The Plaza agreement, official foreign exchange intervention and exchange rate policy in Japan, 1985--2002: An analysis of leaning against the wind (Germany, United States).

摘要

This dissertation takes an empirical approach to investigate the short and long-term effect of the Plaza Accord in 1985. The Bank of Japan's daily intervention operations are not available to researchers, so model estimation is based upon the use of monthly data. For the short-term effect of the Plaza Accord, the impact of the Bank of Japan foreign exchange intervention policy behavior is measured by an estimated intervention reaction function model over the 1985--1991 period. In order to compare and contrast the Bank of Japan foreign exchange intervention policy behavior, the intervention reaction function model was used to estimate from 1979--1985. This model is used to determine the extent to which the accumulation of the foreign reserves over this period was due to the Bank of Japan foreign exchange market intervention policy---'leaning-against-the-wind' or the Bank of Japan aiming at establishing a specific target level for the yen. Through the estimation of an explicit Bank of Japan reaction function, we find statistical evidence that the Bank of Japan intervention policy behavior before and after the Plaza Accord is not based upon 'leaning-with-the-wind.' Nor did the Bank of Japan establish a target level for the yen.; Despite the Bank of Japan unilateral intervention in the foreign exchange market, the yen continued to appreciate after the Plaza Accord. We attributed the yen appreciation to the shrinking interest rate among industrialized countries. At the Plaza Accord there was a coordinated round of discount rate cuts among Japan, Germany and the U.S., to slow upward pressure on the mark and the yen. The shrinking interest rate differentials drove investors to hedge the U.S. dollar and to support the yen in world financial markets.; For the long-term effect of the Plaza Accord, the impact of yen-dollar fluctuations is measured by a vector autoregressive model (VAR) over the 1985--2002 period. We first examine the four-variable VAR model under the closed economy to determine the extent to which the Bank of Japan operates monetary policy through the changes in interbank interest rate since interest rates are an important channel for transmitting monetary policy to the economy. It is shown that there is no causal relationship between the change in the interest rate and the economy, which is attributed to the Japanese financial markets liberalization. The five-variable model (VAR) is examined under the open economy to determine the extent to which the strong yen after the Plaza Accord was the underlying factor of the Japanese economic recession. The obtained statistical results suggest that there is no causal relationship between the changes in the yen-dollar rate and the Japanese economy due to the offsetting changes in domestic demand. Specifically, after the Plaza Accord the yen appreciation is not translated into an increase in imported goods and services. While the size of the effects vary, the general conclusion remains unchanged throughout a range of equation specifications.