While in principle, international payments could be carried out using any currency or set of currencies, in practice, the U.S. dollar is predominant in international trade and financial flows. The dollar acts as a "vehicle currency" in the sense that agents in nondollar economies will generally...

This paper presents an empirical analysis of the macroeconomic and microeconomic factors underlying the causes and persistence of the U.S. external deficit in the 1980s. The paper begins with a review of the extensive literature on this subject, and then outlines an analytical framework that...