Comment

Abstract

Curcuru, Thomas, and Dvorak's paper provides an in‐depth discussion of the problems with the official data that depicts one of the greatest mysteries of modern macroeconomics, namely, that the net international investment position (IIP) of the United States does not seem to be deteriorating significantly, although the country is running very large current account deficits. The paper also argues convincingly that one can discriminate among various “theories” or rather “stories” about the mystery based on a careful evaluation of the relative reliability of data on various subcomponents of the international accounts (the stocks [IIP], the flows of asset accumulation, and the returns). The authors’ analysis suggests that the dark matter story fails since it is built on the assumption that the data on investment income are the most reliable and accurate item in the balance of payments, whereas in reality investment income is largely estimated. The paper describes in considerable detail the authors’ views on how the official U.S. statistics concerning the current account and the U.S. IIP should be adjusted to reflect reality. The paper concludes that after plugging various holes in the accounts, the authors find that the positive returns differential the United States earns on its net IIP is much smaller than implied by the exorbitant privilege theory. They thus take a more open stance on this later view, which implies that the United States can run much larger current account deficits because it receives a higher return on its investments abroad than it pays on its investment liabilities. The authors do not emphasize this, but the “exorbitant privilege view” is similar to the “dark matter view” in that both have at their basis a high return differential. The difference between these two views lies essentially in the way the income investment data are reconciled with the data on the stocks of