Title: The Political Economy of the Japanese Yen and the U.S.-Japanese Trade Conflict
Reference Number: 1080
Publication Date: January 2004
JEL Classifcation:
Author(s):

K.C. Fung
UC California Santa Cruz and HK Institute of Economics & Business Strategy

Hitomi Iizaka and Paul Lau
The University of Hong Kong

Chelsea Lin
National Dong Hwa University

Abstract:

In this paper, we use a version of the Dixit-Grossman-Helpman (1997) common agency model and apply the lobbying framework to exchange rate policies. In particular, we formalize Ron McKinnon's idea that the appreciation of the Japanese yen in the past was due to trade pressure applied by the U.S. government. We extend the theory to examine the case where the Japanese firms are modeled as a coalition of shareholders and incumbent employees (Aoki 1988). We conclude by pointing out that this approach is applicable and relevant to the current disputes on the level of the Yuan exchange rate between the U.S. policymakers and the Chinese government.

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Last modified: 01/26/2004