The Impact Of Sovereign Credit Changes On Current Account Imbalances And Its Transmission Path

In recent years,the world's major economies are showing a weak domestic economy situation and the external imbalance of international payments,the outstanding debt problem has not been fundamentally improved,sovereign credit risk issues in today's world is still prominent,the sovereign credit risk of emerging market countries is more serious.The global balance of payments imbalance,the serious debt burden and the frequent decline of sovereign credit have aroused strong concern about the internal and external imbalances in the economy.The sovereign credit is determined by economic development,financial revenue and expenditure,foreign debt burden,political risk and other factors,therefore the increase of sovereign credit risk is a manifestation of internal and external imbalances of a country's economy.And the decline of sovereign credit will also increase internal and external imbalances,while the current account as an important manifestation of external balance will be affected.In addition,the increase of sovereign credit risk will cause the outflows of capital and lead to the deterioration of capital account in the international balance of payments,which raises the concern that the current account will change with the deterioration of sovereign credit.In this context,this paper attempts to study the relationship between sovereign credit and current accounts,and explore the specific path of sovereign credit changes affecting current accounts.Further,this paper studies the difference of investment grade sovereign credit effect,and the differences between the debt crisis and the non debt crisis period,then finding out the main influence path of China's sovereign credit changes on current accounts,so as to provide the corresponding policy recommendations to adjust China's current account imbalance.Firstly,this paper reviewed the theoretical research of current account,the influence factors of current account and the influence of sovereign credit,in order to explore the theoretical and practical relationship between the two.Secondly,this paper analyzed the status of global current account and sovereign credit rating and described the characteristics of current account in different rating.Further,based on the savings investment gap model this paper deduced the theoretical impact direction of changes in sovereign ratings on current accounts and the relationship of external debt and current account.And this paper also analyzed the main influence channels of sovereign credit rating changes on current accounts such as capital flows,the cost of financing,domestic demand,reputation mechanism and international trade sanctions.Then this paper proposed four hypotheses:(1)The sovereign rating level is higher,the smaller current account;(2)The direction of the change of the current sovereign rating is the same as that of the current account,and the direction of the change of the sovereign rating in the previous period is opposite to the direction of the current account change;(3)Speculative grade country's sovereign rating changes on the current account will weaken;(4)During the debt crisis,the correlation between sovereign ratings and current account is weak.In the part of the positive analysis,this paper selected the annual economic data of 79 countries for 1997-2015 years,and used the two step system GMM method to study the impact of sovereign credit on current accounts.Then used the VAR model to study the annual economic data of China for 1992-2015 years,and used the pulse response diagram to analyze the influence of China's sovereign credit changes on the transmission of current accounts.From the literature review,we found that sovereign credit may affect the current account through effecting capital flows,financing costs and domestic demand.Then,through the empirical description,we found that countries with higher sovereign ratings had smaller current accounts and countries with lower sovereign ratings had larger current accounts before 2009,which was less obvious after 2009,and there was a positive correlation between the sovereign rating changes and current account.Furthermore,based on the analysis of the savings gap model,we found that the changes in sovereign credit had negative effects on the current account,and the external debt is negatively related to the current account.The positive analysis results showes that the sovereign rating level is inversely proportional to the current account;current sovereign ratings changes are positively related to current account,the previous sovereign rating changes are negatively related to current account;speculative grade country's sovereign rating changes on the current account has weakened;in the period of debt crisis,the correlation between sovereign rating level and current account is not strong,and the impact of sovereign rating change is not significant;the impact of China's sovereign rating changes on the current account was negative in the short-term,mainly through the path of capital flows and domestic demand,and the impact of domestic demand was greater.Through theoretical analysis and positive research,we can see that changes in sovereign ratings have a major impact on current account.From the study of China,we found that the impact of China's sovereign rating changes on the current account was negative in the short-term,and the domestic demand path is the main path of transmission.Therefore,in the context of China's current account surplus and the negative outlook of sovereign rating,this paper puts forward the following suggestions: expanding domestic demand and promoting foreign trade balance;introducing foreign capital reasonably;developing China's sovereign rating agencies and improving their international influence.