Cross-Border Returns Differentials

2008

144 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/da1f34e1aeb55c4325f3fb48cc2b3e3d0c43e03c

Citations in the corpus

• International Currencies and Capital Allocation (2020, unknown): “…of gross assets and gross liabilities, including important contributions by Lane and Milesi-Ferretti (2007), Gourinchas and Rey (2007), and Curcuru et al. (2008).5 Our finding that foreigners avoid local-currency debt to such an extent that the external debt liabilities of countries are…”
• Capital Flows in the Euro Area (2013, unknown): “17 On the dangers of extracting valuation estimates from aggregated data, see Curcuru et al (2008), Lane and Milesi-Ferretti (2009), Curcuru et al (2013) and Lane (2013).”
• International Capital Flows and U.S. Interest Rates (2005, unknown): “That said, their adjustments are best thought of as partial (Curcuru et al., 2008), so we do not use BEA data here.”
• Technology Capital and the U.S. Current Account (2009, unknown): “4 See, for example, Gourinchas and Rey (2007) and Curcuru, Dvorak, and Warnock (2008). return differentials in FDI and the focus of research—both inside and outside the BEA— has been on improving estimates of the market value of foreign subsidiaries.”
• Financial Integration, Financial Development, and Global Imbalances (2009, unknown): “See also Gourinchas and Rey (2007), Lane and Milesi-Ferretti (2007), and Curcuru, Dvorak, and Warnock (2008).”
• Exorbitant privilege and exorbitant duty (2010, unknown): “(1993), Rey (2001) or Devereux and Shi (2009), who ally medium of exchange and store of value functions in their model. In the traditional approach to international currencies, size and /or trade links are important insofar as they render a currency more liquid. Stability of the currency is also a p”
• Valuation Effects and the Dynamics of Net External Assets (2009, unknown): “For portfolio equity and debt securities, Curcuru et al. (2008) argue that the actual excess return to the US is quite small.”
• Financial Intermediation, International Risk Sharing, and Reserve Currencies (2017, unknown): “See Curcuru, Dvorak, and Warnock (2008) for a contrarian view.”
• The Valuation Channel of External Adjustment (2009, unknown): “20 Substituting the solution for  (21) in the expression for ∆ and rearranging shows that the elasticity of net equity adjustment to relative productivity shocks is (strictly) positive if and only if:21”
• The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors? (2013, unknown): “The United States, in particular, keeps discovering new portfolio assets from year to year by guest on July 6, 2013 http://qje.oxfordjournals.org/ D ow nloaded from (Curcuru, Dvorak, and Warnock 2008; Lane and Milesi-Ferretti 2009).”
• International Currency Exposures, Valuation Effects, and the Global Financial Crisis (2015, unknown): “See Curcuru et al (2008, 2013), Lane and Milesi-Ferretti (2009) and Gohrband and Howell (2014) on the important role of the OTHt term in explaining the evolution of the US net international investment position.”