A Study Of U.S Current Account Deficit Sustainability Based On International Status Of U.S. Dollar

In the last few years, the US current account deficit ,which has been existing during dozens of years, obviously expand. The Continually worsened US current account condition and the large foreign debets not only seriously influence US macroeconomic, affect U.S. foreign economic relationships and US dollar international status, but also the seriously influence international money market steady, the international reserves choice and the disposition of other countries, finally they will affect the sustainablity of US current account deficit. This paper thought that the U.S. economy imbalance is the basic cause which the US current account deficit constantly increase. The expansion of the U.S. current account deficit is also important performance of the U.S. macroeconomic imbalance in itself. Then US dollar international status is the basic reason that supports the U.S. current account deficit continually expand.This paper based on the historical facts ,we made use of mathematical model and data simulation techniques to explore the characteristic of current account imbalance during the different periods of the international currency system and standard currency's evolution. The paper stress to study the effect of the international status change of US dollar,which is standed by US dollar asset's risk premium on the sustainability of U.S. current account.This paper is comprised of seven Chapters. Chapter one introduces to the background and the structure of this paper. Chapter two comments on the literature of the decision theory of the current account balance,the dollar's international status and the causes of the U.S. current account deficit the United States as well as the sustainability. Chapter 3 recalls the international status of the dollar and compares to the dollar status between different times since mid-late 19th century,then we estimates the risk premium to the dollar's international status during 1970-2008. Chapter four we analyses the imbalance in the world economics in four difference periods of the international monetary system and sum up the characteristics of global imbalance and the mechanism of the sustainability since mid-late 19th century. Chapter five , According to a Stochastic Optimal Control Analysis theory we establish the current account sustainability deficts based on U.S. dollar's international status model (USD-CAS)to explore the sustainability of current account deficit. In Chapter 6,we select the relevant data to estimate the parameters of the USD-CAS framework and the levels which the current account deficit is sustainable. Finally we establish a general analytical framework to explore factors that influence the U.S. current account deficit sustainability and discuss the effect of the sub-prime crisis on the sustainability of U.S. current account deficit. In chapter seven, we summary the major viewpoints and conclusions in the paper and prospect the the research methods of the sustainability of U.S. current account deficit in the further research.This research obtains the main conclusion including: (1) U.S. dollar internationalstatus is the important determining factor and the basic reason. But in the differentperiods, the U.S. current account deficit sustainable scale that U.S. dollar internationalstatus supports is different. In the Bretton woods system time, as a result of U.S.dollar exchange the gold, the U.S. sustainable current account deficit scale whichsupports by U.S. dollar is extremely limited. But after the Bretton woods systemdisintegrates, U.S. dollar with the gold gets unhooked, then causes the U.S. deficitconstantly increase. (2) U.S. dollar international stantus has decisiveness influence tothe sustanability of U.S. current account deficit,which mainly attributes to U.S.dollar assets have negative risk premium to other properties in the world, namely theinternational investor rather accepts negative income to be also willing to have U.S.dollar risk asset.,which make U.S. dollar to enjoy its special superiority statusexcessively in the international fiance market. So that U.S. dollar risk premiumdrops continually, but capital flows into U.S. actually increases. (3) This paper hasestablished the sustainablity of the U.S. current account defict analysis frame, namelyUSD-CAS model. In the model, the investment risk adjustment returns ratio, the riskpremium level, the economic growth and objective factor have decided the U.S.optimal debt level and the U.S. current account deficit sustainable level, then investor risk attitude also affect the U.S. optimal debt level and the U.S. current account deficit sustainable level. (4) U.S. dollar international status mainly manifests by world other countries attitude to U.S. dollar assets, U.S. dollar assets returns ratio is higher, the sustainable U.S. current account deficit sustainable deficit level is higher. Supposed that the risk attutide of other countries in the world to the U.S. assets keeps constant (1- r=1), the U.S. economic growth rate above 3%, US dollar asset's returns ratio is not lower than 3%, the U.S. current account deficit sustainable level is 6.2% of the U.S. GDP. If the above condition change, specially US dollar international statusremarkable drops, the U.S. current account deficit sustainable level will decline; In the extreme case, the U.S. current account deficit is not sustainable.The innovations of the paper are as follows: (1)We measure the U.S. dollar international status by negative risk premium that US dollar assets enjoy in international finance market. (2) We have proven US dollar international status is the important determining factor and the basic reason. The increasing U.S. current account deficit and the negative risk premium enjoyed by U.S. dollar international status are positive correlation (3)We construct the USD-CAS model and has studied US dollar international status change influence on the sustainabe scale of U.S. current account deficit.