The Depreciation Of The Dollar On The U.s. Current Account Impact Studies

In recent years, global economic imbalances cause global imbalances of current account, particularly persistent high current account deficit of U.S and persistent high current account surplus of China are outstanding. Both high current account surplus and deficit are extremely unfavorable to the healthy development of every country. As the balance of trade accounts for the most proportion of the current account, so most people believe that trade imbalance is the main cause leading to current account imbalance, while the bilateral exchange rate is the most important factor affecting the trade balance. As a result, frictions in international trades and debates on bilateral exchange rate are increasing. For example, in recent years, as China has become the largest trade deficit country of U.S, trade frictions between the U.S and China are increasing; U.S accuses China of manipulating RMB exchange rate, and always keeps forcing Yuan appreciation against the U.S. dollar.In order to get rid of the persistent high current account deficit of U.S, economists have finished many related researches. Most of scholars often set up some theoretical models on the basis of certain assumptions, then by using numerical simulation method, the devalued amount of the U.S.dollar is deduced in order to reduce a certain amount of U.S.current account deficit. Some econometrics methods are also employed to estimate the influence of various factors affecting the U.S. current account deficit, and gets different conclusions. Nevertheless, most economists and politicians still do believe the traditional doctrines of the elastic theory; unanimously think the exchange rate is the most important direct factor to regulate the U.S.current account deficit. They also think it is possible to improve the U.S.trade balance and reduce the U.S. current account deficit only through the dollar depreciation, especially by the dollar devaluation against RMB.However, U.S history told us that did not improve U.S.current account deficit at all, even deficit became worse. U.S.politicians always demand the RMB exchange rate be further appreciated for the sake of their own political future.But it is incredible for the most of economists who still stick to the old theory. Of course, there are a few economists have different views that the U.S. low savings rate and expenditure exceeding income are the causes for its deficits.In the process of globalization, the U.S.manufacturing sector has undergone structure restructuring and industrial upgrading, the labor-intensive manufacturers in the U.S.have moved to the low labor cost foreign countries. They produce, process or assemble the low-value added products, re-export them to their domestics or directly export to other places. In fact, the U.S.multinational manufacturers earn the most of profits from the industrial chain by their advanced distribution system, but the profits are recorded as the deficit item in the U.S balance of payment. The low savings rate of U.S also contributes to increasing absorption of the US abroad. Those are the main causes of the U.S trade and current account deficit.The main results of the dissertation are:The dollar exchange rate and the U.S current account inconsistently change, the valuation effect and the pass-through of the dollar exchange rate are too small to improve the U.S current account. Therefore, monetary and fiscal policies instead of exchange rate policies suggested are better policies to regulate its deficit.The creative points are as follows:This dissertation firstly gives a comprehensively quantitative analysis on the valuation effect, interest rate effects of the dollar exchange rate, and the dollar exchange rate pass-through of the compound prices, sub-period prices and commodity prices by categories. On the other hand, by introducing a flexible exchange rate variable to the asset portfolio model, and comparing the fiscal, monetary and exchange rate policy effectiveness in the current account adjustment, it comes to the conclusion the most effective policy is monetary and fiscal policies rather than exchange rate policy to improve the U.S current account deficit.