Abstract

http://ssrn.com/abstract=981287
 
 

References (39)



 
 

Citations (7)



 


 



The Stability of Large External Imbalances: The Role of Returns Differentials


Stephanie E. Curcuru


Federal Reserve Board

Tomas Dvorak


Union College

Francis E. Warnock


University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

April 2007

FRB International Finance Discussion Paper No. 894

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, utilizing data on the actual 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 of U.S. claims over U.S. liabilities is essentially zero. Ending our sample in 2005, the differential is positive, whereas through 2004 it is negative; in both cases the differential is statistically indecipherable from zero. Moreover, were it not for the poor timing of investors from developed countries, who tend to shift their U.S. portfolios toward (or away from) equities prior to the subsequent underperformance (or strong performance) of equities, the returns differential would be even lower. Thus, in the context of equity and bond portfolios we find no evidence that the U.S. can count on earning more on its claims than it pays on its liabilities.

Number of Pages in PDF File: 55

Keywords: current account imbalances, international investment

JEL Classification: F3

working papers series





Download This Paper

Date posted: April 20, 2007  

Suggested Citation

Curcuru, Stephanie E. and Dvorak, Tomas and Warnock, Francis E., The Stability of Large External Imbalances: The Role of Returns Differentials (April 2007). FRB International Finance Discussion Paper No. 894. Available at SSRN: http://ssrn.com/abstract=981287 or http://dx.doi.org/10.2139/ssrn.981287

Contact Information

Stephanie E. Curcuru (Contact Author)
Federal Reserve Board ( email )
20th and C Streets, NW
Washington, DC 20551
United States
Tomas Dvorak
Union College ( email )
Schenectady, NY 12308-3107
United States
518 388 8016 (Phone)
Francis E. Warnock
University of Virginia - Darden Business School ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-6076 (Phone)
HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138-5398
Feedback to SSRN


Paper statistics
Abstract Views: 728
Downloads: 87
Download Rank: 149,865
References:  39
Citations:  7

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.281 seconds