Abstract Based on PFS model, this paper examines influences of U.S. economic imbalances on the U.S. dollar exchange rate from the perspective of political economy by constructing a binary dependent variable (BDV) model. It is found that the influence of the internal economic imbalances or external imbalances to the exchange rate is uncertain. However, when internal and external economic imbalances existing at the same time, depreciation is most likely to happen. The empirical results support the above argumentation. When the U.S. economic internal and external imbalances emerges at the same time, the probability of the dollar depreciation or the U S government intervention in the foreign exchange market will increase by 27 percentage. This indicates that the U S government externalizes the internal problems through affecting exchange rates.
2012, Vol. 1 
