On returns differentials
AbstractEstimates of U.S. returns differentials have ranged from exorbitant to quite small, in part because of their volatility coupled with the relatively short time series available. We shed light on underlying drivers of returns differentials by presenting a number of decompositions: a by-asset-class decomposition into yields and capital gains, the Gourinchas and Rey (2007a) composition and return effects, and further decompositions of capital gains that focus on exchange rate effects. While each decomposition informs thinking about returns differentials, one constant is evident throughout: to date the existing differential favoring the U.S. has owed primarily to one factor, a differential in direct investment yields. We discuss how our analysis informs the income puzzle (of positive net income flows to the U.S. even as its net international investment position is negative and substantial) and the position puzzle (of a sizeable gap between the reported U.S. net international position and cumulated current account deficits), provide an initial assessment of the literature on the dynamics of returns differentials, and present a framework to guide a forward-looking view of how returns differentials might evolve in the future.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1077.
Date of creation: 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Vermeulen, Robert & de Haan, Jakob, 2014.
"Net foreign asset (com)position: Does financial development matter?,"
Journal of International Money and Finance,
Elsevier, vol. 43(C), pages 88-106.
- Robert Vermeulen & Jakob de Haan, 2012. "Net Foreign Asset (Com)position: Does Financial Development Matter?," DNB Working Papers 340, Netherlands Central Bank, Research Department.
- Guonan Ma & Robert N McCauley, 2013.
"Global and euro imbalances: China and Germany,"
BIS Working Papers
424, Bank for International Settlements.
- Canzoneri, Matthew & Cumby, Robert & Diba, Behzad & López-Salido, David, 2013. "Key currency status: An exorbitant privilege and an extraordinary risk," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 371-393.
- Benjamin Bridgman, 2009.
"Do Intangible Assets Explain High U.S. Foreign Direct Investment Returns?,"
2009 Meeting Papers
373, Society for Economic Dynamics.
- Bridgman, Benjamin, 2014. "Do intangible assets explain high U.S. foreign direct investment returns?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 159-171.
- Kenneth S. ROGOFF & TASHIRO Takeshi, 2014. "Japan's Exorbitant Privilege," Discussion papers 14047, Research Institute of Economy, Trade and Industry (RIETI).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).
If references are entirely missing, you can add them using this form.