TY - JOUR AU - Curcuru,Stephanie E. AU - Dvorak,Tomas AU - Warnock,Francis E. TI - Cross-Border Returns Differentials JF - National Bureau of Economic Research Working Paper Series VL - No. 13768 PY - 2008 Y2 - February 2008 UR - http://www.nber.org/papers/w13768 L1 - http://www.nber.org/papers/w13768.pdf N1 - Author contact info: Stephanie E. Curcuru Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue, NW Washington DC 20551 E-Mail: stephanie.e.curcuru@frb.gov Tomas Dvorak Union College Department of Economics Social Sciences Bldg 215 Schenectady, NY 12308 Tel: 518-388-8016 E-Mail: dvorakt@union.edu Francis E. Warnock Darden Business School University of Virginia Charlottesville, VA 22906-6550 Tel: 434/924-6076 Fax: 434/243-8945 E-Mail: warnockf@darden.virginia.edu AB - 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. ER -