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Unformatted text preview: other upward ratchet of the yen,
leading possibly to another period of overvaluation,
was convincingly quashed, Japanese firms and households would become more willing to spend for
investment and consumption’ (McKinnon and Ohno,
1999, p. 24). And the way to achieve such a
stabilization of the currency lies in an agreement
with the United States, settling on a long-term
nominal yen–dollar parity. This, in turn, would require some monetary-policy coordination between
the two countries.
The major difficulty with this proposal is not dissimilar to that of the Krugman proposal. There, one had
to persuade central bankers to behave ‘irresponsibly’. Here, one has to persuade central bankers to
coordinate their monetary policies internationally (in
other words, some would say, to behave ‘sensibly’!). Given the very patchy and unsatisfactory
history of international economic cooperation so far,
and the known opposition of the US authorities to
any encroachment on their policy autonomy, the
chances of such an agreement being reached, and
then stuck to, seem clos...
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- Summer '13