The purpose of this project is to clarify the nature and dynamics of international cooperation in exchange rate management among the three major industrialized countries, namely the United States, Japan and Germany. The currencies of these three countries, the dollar, yen and mark, have been floating against one another since the early 1970s, but the exchange rates among them have been unstable and saw major misalignments in the early 1980s, leading to a greater concern for the possibility of international cooperation to stabilize exchange rates and prevent misalignments. There is some evidence that the three countries have been trying to coordinate their exchange rate policies systematically since the mid-1980s, but except for some journalistic accounts of coordination, not much is known about how and why cooperation takes place. This project is the first major attempt to systematically analyze the causal structure of exchange rate cooperation. The project covers the entire period of floating exchange rates and uses the data on foreign exchange market intervention published by the Federal Reserve Board and the German Bundesbank and estimated data for Japan. Other standard economic statistics available from national and international sources and political variables which are relatively easily observable are also used. The project is significant in the sense that it is the first scientific (statistical) attempt to explain exchange rate policy cooperation among the three key countries of enormous economic and political importance. If successfully executed, it will not only contribute to our understanding of the nature of the current exchange rate system and exchange rate policies but also contribute to our understanding of international economic cooperation in general.
