Working Paper: NBER ID: w14295
Authors: Stephanie E. Curcuru; Charles P. Thomas; Francis E. Warnock
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.
Keywords: No keywords provided
JEL Codes: F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US current account deficits (F32) | sustainability of these deficits (H62) |
| perceived reliability of investment income data (G11) | conclusions about current account sustainability (F32) |
| dark matter theory reliance on investment income accuracy (G11) | sustainability of US current account deficits (F32) |
| returns differential (C29) | sustainability of US current account (F32) |
| net international investment position (F30) | reported figures (Y10) |