Current Issues in Economics and Finance

The Changing Nature of the U.S. Balance of Payments

June 2008Volume 14, Number 4
JEL classification: F00, F01, F02

Authors: Rebecca Hellerstein and Cédric Tille

Earnings on cross-border investments figure only marginally in net estimates of the U.S. current account, but they represent an increasingly large share of gross flows between the United States and other nations. Because these earnings fluctuate much more sharply than trade flows, they can be expected to create permanently higher current account volatility. Such increased volatility is not necessarily grounds for concern, however; it reflects an international sharing of risk that provides a buffer against domestic economic uncertainty.

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