NEAR THE END of September last year, finance ministers from the five leading industrial countries - the United States, Japan, Germany, France and the United Kingdom - met at the Plaza Hotel in New York to plan a strategy of intervention in exchange markets to bring down the value of the dollar.
The subsequent decline in the value of the dollar has been hailed as testimony to the effectiveness of coordinated intervention. But, says Martin Feldstein, president of the National Bureau of Economic Research, the dollar fell no faster in the nine months after the Plaza meeting than in the six months before.Thus, according to Mr. Feldstein, a former chairman of President Reagan's Council of Economic Advisers, "The efficacy of coordinated intervention as an instrument of economic policy remains questionable."
The dollar fell about 4 percent in the first trading day after the Plaza meeting, then in the next nine months an additional 25 percent against the yen, 18 percent against the mark and 15 percent against a multilateral trade- weighted basket of currencies.
However, Mr. Feldstein finds, except for that immediate 4 percent drop, the overall trade-weighted value of the dollar dropped average 3 percent after the meeting, exactly the same as it had before. The index he used is calculated by the Federal Reserve Board, but he gets the same results using a bilateral weighted index produced by the Morgan Guaranty Trust Co.
Moreover, the data from Morgan Guaranty show that the dollar's decline was substantially less after the Plaza meeting than before - with one exception. Against the yen, the dollar declined more rapidly. Even so, Mr. Feldstein believes, the exception does little to prove the case for intervention because the Japanese made a major shift to strengthen the yen after the G-5 meeting.