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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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    Handle: RePEc:nbr:nberwo:14295

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    1. John D. Burger & Francis E. Warnock, 2006. "Foreign Participation in Local Currency Bond Markets," NBER Working Papers 12548, National Bureau of Economic Research, Inc.
    2. 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.
    3. 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.
    4. Michele Cavallo & Cédric Tille, 2006. "Could capital gains smooth a current account rebalancing?," Working Paper Series 2006-03, Federal Reserve Bank of San Francisco.
    5. 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.
    6. Pavlova, Anna & Rigobon, Roberto, 2010. "An asset-pricing view of external adjustment," Journal of International Economics, Elsevier, vol. 80(1), pages 144-156, January.
    7. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "Financial Globalization and Exchange Rates," IMF Working Papers 05/3, International Monetary Fund.
    8. 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.
    9. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Working Papers 11563, National Bureau of Economic Research, Inc.
    10. John D. Burger & Francis E. Warnock, 2006. "Local Currency Bond Markets," NBER Working Papers 12552, National Bureau of Economic Research, Inc.
    11. Philip R. Lane and Gian Maria Milesi-Ferretti, 2008. "Where Did All The Borrowing Go? A Forensic Analysis of the U.S. External Position," The Institute for International Integration Studies Discussion Paper Series iiisdp239, IIIS.
    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. 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.
    14. Ralph H. Kozlow, 2006. "Statistical Issues Related to Global Economic Imbalances: Perspectives on "Dark Matter"," BEA Papers 0068, Bureau of Economic Analysis.
    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. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, 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 7046, C.E.P.R. Discussion Papers.

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