Working Paper: CEPR ID: DP6655
Authors: Philip R. Lane; Gian Maria Milesi-Ferretti
Abstract: The deterioration in the U.S. net external position in recent years has been much smaller than the extensive net borrowing associated with large current account deficits would have suggested. This paper examines the sources of discrepancies between net borrowing and accumulation of net liabilities for the U.S. economy over the past 25 years. In particular, it highlights and quantifies the role played by net capital gains on the U.S. external portfolio and ?residual adjustments? in explaining this discrepancy. It discusses whether these ?residual adjustments? are likely to be originating from measurement errors in external assets and liabilities, financial flows, or capital gains, and explores the implications of these conjectures for the U.S. financial account and external position.
Keywords: capital flows; current account; external adjustment; external assets and liabilities; financial integration; net foreign asset position
JEL Codes: F21; F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net capital gains (H24) | net foreign asset position (F32) |
| cumulative current account deficits (F32) | net international investment position (IIP) (F30) |
| positive valuation effects from capital gains on foreign assets (F21) | discrepancy between US current account deficits and net international investment position (IIP) (F32) |
| residual adjustments (C20) | net foreign asset position (F32) |
| residual adjustments (C20) | measurement errors in data collection (C83) |
| capital gains (H24) | measured return differential between US external assets and liabilities (F21) |