Working Paper: NBER ID: w13768
Authors: Stephanie E. Curcuru; Tomas Dvorak; Francis E. Warnock
Abstract: Were the U.S. to persistently earn substantially more on its foreign investments ("U.S. claims") than foreigners earn on their U.S. investments ("U.S. liabilities"), the likelihood that the current environment of sizeable global imbalances will evolve in a benign manner increases. However, using a monthly dataset on the foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential for portfolio securities is near zero, far smaller than previously reported. Examining all U.S. claims and liabilities (portfolio securities as well as direct investment and banking), we find that previous estimates of large differentials are biased upward. The bias owes to computing implied returns from an internally inconsistent dataset of revised data; original data produce a much smaller differential. We also attempt to reconcile our finding of a near zero returns differential with observed patterns of cumulated current account deficits, the net international investment position, and the net income balance. Overall, we find no evidence that the U.S. can count on earning substantially more on its claims than it pays on its liabilities.
Keywords: returns differentials; global imbalances; U.S. foreign investments
JEL Codes: F3; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Composition of U.S. claims (F34) | Higher returns (G19) |
| Internally inconsistent datasets (Y10) | Biased upward estimates of returns differentials (C51) |
| Methodological issues in calculating implied capital gains (C51) | Large differentials in prior research (D29) |
| Returns differential for portfolio securities (G12) | Understanding global imbalances (F65) |
| U.S. claims composition (N42) | Perceived exorbitant privilege in international finance (F39) |