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The Valuation of Hidden Assets in Foreign Transactions: Why “Dark Matter” Matters

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Abstract

This paper clarifies how the valuation of hidden assets—what we call “dark matter”—changes our assessment of the U.S. external imbalance. Dark matter assets are defined as the capitalized value of the return privilege obtained by U.S. assets. Because this return privilege has been steady over recent decades, it is likely to persist in the future or even to increase, as it becomes leveraged by an increasingly globalized world. Once this is included in future projections of U.S. current accounts, the U.S. external position looks much more balanced than depicted in official statistics.Business Economics (2007) 42, 28–34; doi:10.2145/20070103
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... The concept of dark matter, in international economics, was coined later than valuation effects and Hausmann and Sturzenegger [18] did not use the concept of valuation effects in their studies because they believed exchange rate changes and asset price fluctuations can only explain part of the discrepancies between current account balances and changes in net foreign assets. They did agree that changes in exchange rates, given different currency composition of foreign assets and liabilities, will lead to changes in the valuation of net foreign assets. ...
... In a series of articles Hausmann and Sturzenegger (2005, 2007a, 2007b (HS, 2005(HS, , 2006(HS, , 2007a(HS, , 2007b hence), we have argued that, in some cases, this logic, that relates current account defi cits so naturally with net external payments, can fail. We use the case of the US to explain why. ...
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... In a series of articles Hausmann and Sturzenegger (2005, 2007a, 2007b (HS, 2005(HS, , 2006(HS, , 2007a(HS, , 2007b hence), we have argued that, in some cases, this logic, that relates current account defi cits so naturally with net external payments, can fail. We use the case of the US to explain why. ...
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Chapter
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and Global Imbalances: Can Dark Matter Prevent a Big Bang? Working paper, Kennedy School of Government The Income Implications of Rising U.S. International Liabilities
  • Hausmann
  • Federico Ricardo
  • Sturzenegger
  • Thomas Mathew
  • Cedric Klitgaard
  • Tille
Hausmann, Ricardo and Federico Sturzenegger. 2006b. " U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang? " Working paper, Kennedy School of Government. November. Higgins, Mathew, Thomas Klitgaard, and Cedric Tille. 2005. " The Income Implications of Rising U.S. International Liabilities. " Current Issues in Economics and Finance, Federal Reserve Bank of New York. 11:12.