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Current Account Sustainability and Relative Reliability

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  • Stephanie E. Curcuru
  • Charles P. Thomas
  • Francis E. Warnock

Abstract

The sustainability of the large and persistent U.S. current account deficits is one of the biggest issues currently being confronted by international macroeconomists. Some very plausible theories suggest that the substantial global imbalances can continue in a benign manner, other equally plausible theories predict a disorderly resolution, and in general it is very difficult to discern between competing theories. To inform the debates, we view competing theories through the perspective of the relative reliability of the data the theories rely on. Our analysis of the dark matter theory is cursory; from a relative reliability perspective, it fails as it is built on the assumption that an item that is largely unmeasured is the most accurate component of the entire set of international accounts. Similarly, the best data currently available suggest that U.S. returns differentials are much smaller than implied by the exorbitant privilege theory. Our analysis opens up questions about potential inconsistencies in the international accounts, which we address by providing rough estimates of various holes in the accounts.
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  • Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock, 2009. "Current Account Sustainability and Relative Reliability," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 67-109.
    • Handle: RePEc:ucp:intsma:doi:10.1086/595998
    DOI: 10.1086/595998
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    Cited by:

    1. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E. & Wongswan, Jon, 2014. "Uncovered Equity Parity and rebalancing in international portfolios," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 86-99.
    2. Gabriel Zucman, 2013. "The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 1321-1364.
    3. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
    4. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "External Adjustment, Global Imbalances, Valuation Effects," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 585-645, Elsevier.
    5. Gian Maria Milesi‐Ferretti, 2008. "Fundamentals at Odds? The US Current Account Deficit and Dollar," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(3), pages 259-281, November.
    6. Stephanie E. Curcuru & Charles P. Thomas, 2014. "The Return on U.S. Direct Investment at Home and Abroad," NBER Chapters, in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 205-230, National Bureau of Economic Research, Inc.
    7. Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2011. "US International Equity Investment and Past and Prospective Returns," American Economic Review, American Economic Association, vol. 101(7), pages 3440-3455, December.
    8. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2009. "Where did all the borrowing go? A forensic analysis of the U.S. external position," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 177-199, June.
    9. Tomasz Michalski & Gilles Stoltz, 2013. "Do Countries Falsify Economic Data Strategically? Some Evidence That They Might," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 591-616, May.
    10. Curcuru, Stephanie E. & Dvorak, Tomas & Warnock, Francis E., 2010. "Decomposing the U.S. external returns differential," Journal of International Economics, Elsevier, vol. 80(1), pages 22-32, January.
    11. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E., 2013. "On returns differentials," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 1-25.
    12. Bridgman, Benjamin, 2014. "Do intangible assets explain high U.S. foreign direct investment returns?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 159-171.
    13. William Barcelona & Nathan Converse & Anna Wong, 2021. "U.S. Housing as a Global Safe Asset: Evidence from China Shocks," International Finance Discussion Papers 1332, Board of Governors of the Federal Reserve System (U.S.).
    14. Daniel Fried, 2021. "CBO’s Model and Projections of U.S. International Investment Holdings and Income Flows: Working Paper 2021-10," Working Papers 57326, Congressional Budget Office.
    15. Gourinchas, Pierre-Olivier & Rey, Hélène, 2014. "Chapter 10 External Adjustment, Global Imbalances, Valuation Effects," Department of Economics, Working Paper Series qt42k8h7mp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    16. John D. Burger & Alessandro Rebucci & Francis E. Warnock & Veronica Cacdac Warnock, 2010. "External Capital Structures and Oil Price Volatility," Research Department Publications 4667, Inter-American Development Bank, Research Department.
    17. Allen, Cían, 2019. "Revisiting external imbalances: Insights from sectoral accounts," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 67-101.
    18. Rey, Hélène & Gourinchas, Pierre-Olivier, 2013. "External Adjustment, Global Imbalances and Valuation Effects," CEPR Discussion Papers 9566, C.E.P.R. Discussion Papers.
    19. Wong, Anna, 2021. "Capital flight: The travel channel," Journal of International Money and Finance, Elsevier, vol. 117(C).
    20. Mileva, Mariya, 2015. "Valuation effects and long-run real exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 390-408.
    21. Beckmann, Joscha & Belke, Ansgar & Gros, Daniel, 2022. "Savings–investment and the current account More measurement than identity," Journal of International Money and Finance, Elsevier, vol. 121(C).
    22. Stephanie E. Curcuru & Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2011. "U.S. international equity investment and past prospective returns," International Finance Discussion Papers 1016, Board of Governors of the Federal Reserve System (U.S.).
    23. Andreas M. Fischer & Dr. Pinar Yesin, 2023. "The kindness of strangers: Brexit and bilateral financial linkages," Working Papers 2023-02, Swiss National Bank.
    24. Yeh, Kuo-chun & Ho, Tai-kuang, 2012. "Magnitude and volatility of Taiwan's net foreign assets against Mainland China: 1981–2009," China Economic Review, Elsevier, vol. 23(3), pages 720-728.
    25. Luis Servén & Ha Nguyen, 2013. "Global Imbalances: Origins and Prospects," The World Bank Research Observer, World Bank, vol. 28(2), pages 191-219, August.

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