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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 Frankel, Jeffrey and Christopher Pissarides (eds.) NBER International Seminar on Macroeconomics 2008. Chicago: University of Chicago Press, 2009.
    Handle: RePEc:nbr:nberwo:14295

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    1. 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, Wiley Blackwell, vol. 15(5), pages 1036-1061, November.
    2. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," NBER Working Papers 12552, National Bureau of Economic Research, Inc.
    3. Michele Cavallo & Cédric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Working Paper Series, Federal Reserve Bank of San Francisco 2006-03, Federal Reserve Bank of San Francisco.
    4. 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.
    5. Philip R. Lane & Gian Maria Milesi-Ferretti, 2004. "Financial globalization and exchange rates," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19926, London School of Economics and Political Science, LSE Library.
    6. Ralph H. Kozlow, 2006. "Statistical Issues Related to Global Economic Imbalances: Perspectives on "Dark Matter"," BEA Papers, Bureau of Economic Analysis 0068, Bureau of Economic Analysis.
    7. Anna Pavlova & Roberto Rigobon, 2007. "An Asset-Pricing View of External Adjustment," NBER Working Papers 13468, National Bureau of Economic Research, Inc.
    8. 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, CEPR;CES;MSH, vol. 22, pages 469-518, 07.
    9. Guy Meredith, 2007. "Debt Dynamics and Global Imbalances," IMF Working Papers 07/4, International Monetary Fund.
    10. Carol C. Bertaut & Steven B. Kamin & Charles P. Thomas, 2008. "How long can the unsustainable U.S. current account deficit be sustained?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 935, Board of Governors of the Federal Reserve System (U.S.).
    11. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," CEPREMAP Working Papers (Docweb), CEPREMAP 0606, CEPREMAP.
    12. Owen A. Lamont & Jeremy C. Stein, 2003. "Aggregate Short Interest and Market Valuations," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2027, Harvard - Institute of Economic Research.
    13. Frankel, Jeffrey, 2006. "Global Imbalances and Low Interest Rates: An Equilibrium Model vs. A Disequilibrium Reality," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp06-035, Harvard University, John F. Kennedy School of Government.
    14. Burger, John D. & Warnock, Francis E., 2007. "Foreign participation in local currency bond markets," Review of Financial Economics, Elsevier, Elsevier, vol. 16(3), pages 291-304.
    15. Philip R. Lane & G Milesi-Feretti, 2004. "Financial Globalization and Exchange Rates," CEP Discussion Papers, Centre for Economic Performance, LSE dp0662, Centre for Economic Performance, LSE.
    16. 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.
    17. Carol C. Bertaut & Ralph W. Tryon, 2007. "Monthly estimates of U.S. cross-border securities positions," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 910, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:
    1. Philip R. Lane & Gian Maria Milesi-Ferretti, 2009. "Where did all the borrowing go? A forensic analysis of the U.S. external position," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
    2. Milesi-Ferretti, Gian Maria, 2008. "Fundamentals at Odds? The US Current Account Deficit and The Dollar," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7046, C.E.P.R. Discussion Papers.
    3. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
    4. Luis Servén & Ha Nguyen, 2013. "Global Imbalances: Origins and Prospects," World Bank Research Observer, World Bank Group, World Bank Group, vol. 28(2), pages 191-219, August.
    5. 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, Elsevier, vol. 23(3), pages 720-728.
    6. Gian-Maria Milesi-Ferretti, 2008. "Fundamentals At Odds? T+L4130he U.S. Current Account Deficit and the Dollar," IMF Working Papers 08/260, International Monetary Fund.

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