Two essays on monetary policy under foreign commercial pressure

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Maksim Brukouski's study delves into Japan's postwar economic history, particularly its trade disputes with the United States. It highlights unique phenomena such as decade-long deflation, the liquidity trap, and the high yen recession following the collapse of the Bretton Woods system. A significant non-mainstream explanation for these issues is the commercial pressure to appreciate the yen amid trade tensions with the US. Despite extensive debate, theoretical research on the impact of political pressure in affected economies has been limited. Brukouski addresses this gap using two analytical tools: a comparative static model and an extension to a baseline New-Keynesian DSGE framework. His examination of the short- and long-term effects of mercantile pressure on monetary policy and the economy challenges the conventional belief that exchange rates predictably influence trade balances. He assesses the costs and effectiveness of such pressures and uncovers new insights into the origins of Japan's trade-related challenges. The findings serve as a cautionary tale for other nations, like China, facing similar foreign commercial dynamics, urging them to avoid repeating past policy errors.