The two countries were engaged in fierce bargaining over a wide range of products which eventually led to the 1985 Plaza Accord followed by the 1987 Louvre Accord
that saw a significant exchange rate correction between the yen and the dollar.
The Plaza Accord, signed on 22 September 1985 among the G7 nations (with the exception of Canada and Italy) and the Louvre Accord
, signed in February 1987, are but two examples of the United States seeking to salvage its own economy.
Unlike the 1985 Plaza Accord that focused on "exchange rate levels," the general policy emphasis since the 1987 Louvre Accord
has rightly been on managing "exchange rate volatility." While exchange market interventions by the central banks have generally been ineffective in terms of achieving any exchange rate level, interventions have a better track record in containing volatility (Pattanaik and Sahoo 2001).
The subsequent Louvre Accord
of February 22, 1987 set up informal target zones for the dollar against the yen and the Deutsche mark, zones that were definitively breached after the October 1987 stock market crash.
intervention operations, however, have taken place since the Louvre Accord
of February 1987; since then U.S.
In 1987, the international adjustment process to the large current account imbalances was featured by two events: the Louvre accord
in February and the stock market crash in mid-October.
As the dollar moved to levels not seen since the February 1987 Louvre Accord
, market participants increasingly came to question the will of the G-7 monetary authorities to half the dollar's rise.
In spite of the fact that the Tokyo declaration chose the expression, "countries whose currencies constitute the SDR" and did not use the "G5" designation, the G5 meeting was held first for the Louvre Accord
in February 1987, and the G7 was treated as a forum for ex post facto authorization.
The concept of target zones as adopted in the Louvre Accord
in 1987 was another major success though under the term "reference rates," because Deputy Treasury Secretary Richard Darman said he couldn't call it the same thing we called it.
Proposals for exchange rate coordination among the major currencies have been still-born since the Louvre Accord
because they both promise too much and require too much of the issuing governments.
By 1985 it signed the Louvre accord
to try to prevent the dollar from falling too far.
When the decline of the dollar threatened to become disruptive, in early 1987, the G7 shifted from Plaza correction to Louvre stabilization to avoid the risk of a "hard landing." Some observers of that arrangement, especially in Japan, have blamed the subsequent asset bubble in that country on the Louvre accord
. In fact, the currency "reference ranges" adopted at the Louvre were retained for only a few months and could hardly be blamed (or credited) for anything that occurred over the next few years.