10/10/2021

History

Prime Minister Nakasone from Japan visits United States in 1985, accompanied by Foreign Minister Abe. During their first meeting with President Reagan on the 13th at Camp David, the President requests that recommendations contained in the Maekawa Report were to be followed. The Prime Minister announces his determination to ensure that Japan’s economy becomes import-oriented. Also on the 13th, Foreign Minister Abe and Secretary of State Schwartz confer in Washington, and agree to create opportunities for dialogue on economic structural reforms required for their development

Multiple Linear Regression

U.S. Exports of Goods by F.A.S. Basis to Japan in Millions, Not Seasonally Adjusted from 1985 to 2020,In this scenario, I am using exports as my dependent variable and exchange rate and Industrial production as my independent variables because they have a great impact on GDP growth from that period to the current period. (Frequency: Monthly)

Summary of the Attributes

## 
## Call:
## lm(formula = exports ~ exchangerate + industrialproduction, data = A9)
## 
## Residuals:
##     Min      1Q  Median      3Q     Max 
## -1299.8  -413.4   -19.5   398.9  1925.9 
## 
## Coefficients:
##                      Estimate Std. Error t value Pr(>|t|)    
## (Intercept)          3449.459    296.937   11.62   <2e-16 ***
## exchangerate          -15.359      1.269  -12.11   <2e-16 ***
## industrialproduction   34.938      2.091   16.71   <2e-16 ***
## ---
## Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
## 
## Residual standard error: 591.9 on 418 degrees of freedom
## Multiple R-squared:  0.7068, Adjusted R-squared:  0.7054 
## F-statistic: 503.8 on 2 and 418 DF,  p-value: < 2.2e-16

Regression Plot

Major Reasons

  • The Plaza Accord was a 1985 agreement among the G-5 nations—France, Germany, the United States, the United Kingdom, and Japan—to manipulate exchange rates by depreciating the U.S. dollar relative to the Japanese yen and the German Deutsche mark.

  • The goal of the Plaza Accord was to weaken the U.S. dollar in order to reduce the mounting U.S. trade deficit but the Japanese would later become the world’s leading creditor nation of the world as most money moved offshore. But cheap money policies would later create a slower consumption rate at home, rising land prices, and the creation of an asset bubble that would burst years later, leading to the period known as the lost decade.

Trade Deficit