Working Paper: NBER ID: w21813
Authors: Jeffrey Frankel
Abstract: The paper reviews an event of 30 years ago from the perspective of today: a successful G-5 initiative to reverse what had been an overvalued dollar. The “Plaza Accord” is best viewed not as the precise product of the meeting on September 22, 1985, but as shorthand for a historic change in US policy that began when James Baker became Treasury Secretary in January of that year. The change had the desired effect, bringing down the dollar and reducing the trade deficit. In recent years concerted foreign exchange intervention, of the sort undertaken by the G-7 in 1985 and periodically over the subsequent decade, has died out. Indeed the G-7 in 2013, fearing “currency manipulation,” specifically agreed to refrain from intervention in a sort of “anti-Plaza accord.” But some day coordinated foreign exchange intervention will return.
Keywords: Plaza Accord; currency manipulation; foreign exchange intervention; trade balance
JEL Codes: F33; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Plaza Accord (F31) | coordinated foreign exchange interventions (F31) |
| coordinated foreign exchange interventions (F31) | depreciation of the dollar (F31) |
| depreciation of the dollar (F31) | improvement of the trade balance (F14) |
| Plaza Accord (F31) | depreciation of the dollar (F31) |
| depreciation of the dollar (F31) | U.S. trade deficit (F14) |