The stability of large external imbalances
Subtitle: the role of returns differentials
By: Stephanie E. Curcuru, Tomas Dvorak, and Francis E. Warnock
Contributors: Dvořák, Tomáš, 1973-; Warnock, Francis E.; Board of Governors of the Federal Reserve System (U.S.)
Series: International finance discussion papers -- no. 894; International finance discussion papers (Online) -- no. 894.
Publisher: Federal Reserve Board
Published: 2007
Place of publication: Washington, D.C
Language: eng
Format: [electronic resource] :
Description: "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"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 7/23/2007.

Includes bibliographical references.

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