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Current Account Sustainability and Relative Reliability

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

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14295.

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    Date of creation: Sep 2008
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    Publication status: published as Stephanie E. Curcuru, Charles P. Thomas, Francis E. Warnock. "Current Account Sustainability and Relative Reliability," in Jeffrey Frankel and Christopher Pissarides, organizers, "NBER International Seminar on Macroeconomics 2008" University of Chicago Press (2009)
    Handle: RePEc:nbr:nberwo:14295

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    1. Michele Cavallo & Cedric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Staff Reports 237, Federal Reserve Bank of New York.
    2. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," CEPREMAP Working Papers (Docweb) 0606, CEPREMAP.
    3. John Kitchen, 2007. "Sharecroppers or Shrewd Capitalists? Projections of the US Current Account, International Income Flows, and Net International Debt," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 1036-1061, November.
    4. John D. Burger & Francis E. Warnock, 2004. "Foreign participation in local-currency bond markets," International Finance Discussion Papers 794, Board of Governors of the Federal Reserve System (U.S.).
    5. Frankel, Jeffrey, 2006. "Global Imbalances and Low Interest Rates: An Equilibrium Model vs. A Disequilibrium Reality," Working Paper Series rwp06-035, Harvard University, John F. Kennedy School of Government.
    6. Owen A. Lamont & Jeremy C. Stein, 2004. "Aggregate Short Interest and Market Valuations," American Economic Review, American Economic Association, vol. 94(2), pages 29-32, May.
    7. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 7.
    8. Ralph H. Kozlow, 2006. "Statistical Issues Related to Global Economic Imbalances: Perspectives on "Dark Matter"," BEA Papers 0068, Bureau of Economic Analysis.
    9. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
    10. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2008. "Where Did All the Borrowing Go? A Forensic Analysis of the U.S. External Position," IMF Working Papers 08/28, International Monetary Fund.
    11. Anna Pavlova & Roberto Rigobon, 2007. "An Asset-Pricing View of External Adjustment," NBER Working Papers 13468, National Bureau of Economic Research, Inc.
    12. Carol C. Bertaut & Ralph W. Tryon, 2007. "Monthly estimates of U.S. cross-border securities positions," International Finance Discussion Papers 910, Board of Governors of the Federal Reserve System (U.S.).
    13. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
    14. Ricardo Hausmann & Federico Sturzenegger, 2007. "The missing dark matter in the wealth of nations and its implications for global imbalances," Economic Policy, CEPR & CES & MSH, vol. 22, pages 469-518, 07.
    15. Guy Meredith, 2007. "Debt Dynamics and Global Imbalances: Some Conventional Views Reconsidered," IMF Working Papers 07/4, International Monetary Fund.
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    Cited by:
    1. Gian-Maria Milesi-Ferretti, 2008. "Fundamentals at Odds? The U.S. Current Account Deficit and The Dollar," IMF Working Papers 08/260, International Monetary Fund.
    2. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
    3. 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.

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