Explaining long term exchange rate behavior in the United States and Japan

A practical knowledge of exchange rates is of vital importance for economic policy in our increasingly interconnected world. Expectations about the consequences of NAFTA, the EEC, the causes and cures for trade deficits, the “appropriate” level of exchange rates at which policy should aim, and about the general consequences of macroeconomic policy – these and many more issues depend heavily on an explanation of exchange rate behavior.