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Current Account Sustainability and Relative Reliability

  • Stephanie E. Curcuru
  • Charles P. Thomas
  • Francis E. Warnock
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    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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    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
    Date of revision:
    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
    Note: IFM
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    1. 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.
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    11. Pavlova, Anna & Rigobon, Roberto, 2010. "An asset-pricing view of external adjustment," Journal of International Economics, Elsevier, vol. 80(1), pages 144-156, January.
    12. Guy Meredith, 2007. "Debt Dynamics and Global Imbalances: Some Conventional Views Reconsidered," IMF Working Papers 07/4, International Monetary Fund.
    13. Ralph H. Kozlow, 2006. "Statistical Issues Related to Global Economic Imbalances: Perspectives on "Dark Matter"," BEA Papers 0068, Bureau of Economic Analysis.
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