24 and the way to achieve such a stabilization of the

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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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